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News Release


Operating commercial operations inside a condominium

There are times when commercial entities want to do business within a residential condominium, and there are rules that need to be followed.

Commercial interests sometimes cloud judgments. This is apparent in many real life situations. Managing condominiums is not exempt to this. There are times when commercial entities want to do business within a residential condominium, be it a tour agency, rental agency, spa or restaurant. Many of these businesses benefit the owners and therefore make sense to operate in a residential condominium. However, whatever business it is, there are rules that need to be followed.

First and foremost, it must be made clear that a commercial operation can be allowed in a residential condominium when
  1. The ​condominium has any commercial unit indicated on its building plans.
  2. Additional commercial space is approved by a vote of more than 50% of the total co-owners. 
  3. Additional commercial space has a lease indicating the terms and what the commercial operator can do in the space.
There are instances of commercial operations in condominiums where the above has not been adhered to. This may be the result of misconceptions of juristic person committee, co-owners or developers, regarding commercial use within condominiums. 
  • ​In some cases, juristic person committees may not understand their level of authority and unknowingly enter into agreements with third parties to allow them to operate commercial services from within side their building. In reality, the committee does not have the power to authorize the use of space for commercial purposes.
  • Some co-owners can mistakenly believe they can use their own space for a commercial venture. A condominium unit is only for residential purposes and cannot be converted into a commercial space in all cases.
  • Developers who have built and sold the units still need an agreement with the condominium once the units are sold and transferred to operate any resale or leasing operations. Occasionally developers remain within the condominium in good faith to offer investors and owners these services but it needs approval once the condominium juristic person is formed.
Plan ahead
Developers who are considering building condominiums should plan ahead what to include in their property offerings. More often than not and especially in resort locations, there always seems to be a food and beverage outlet of some shape or size included in the plans. 

This, in most cases, can be a good idea but the developer must understand what is allowed under the building regulations. For example, a commercial unit must be clearly defined on any approved building plan. Any change of use of the unit should be noted to the correct authority. In terms of access to these commercial areas, a commercial unit must not block access through any of the common part of the property and must have a clearly defined entrance and exit. 

The developer has the right to sell the approved commercial unit on any new building to whomever they choose and the agreement is between the developer and the commercial unit owner. While, the commercial unit owner has the same voting rights at any general meeting as other co-owners, he must abide by the condominium rules and regulations as other co-owners too. This includes the payment of common area management fees and sinking funds. The commercial unit owner must provide its own separate insurance for its premises. 

Allowing commercial use in condominium
The correct process to allow additional common space to be utilized by a commercial operator is to present the idea to the condominium management committee. If the committee agrees to the principal, the committee chairman can include the request and proposal to the annual general meeting (AGM). Once the AGM votes in favor of the proposed commercial activity, a lease will be drawn up between the condominium juristic manager and the commercial operator. 

It is important to note that the condominium committee, the juristic manager or the property management team cannot grant permission for commercial operations. In addition, co-owners, committees and the management team of condominiums should not be blinded by trying to lease out space within their condominiums just to produce income to help reduce exposure to operating expenses. Condominiums should run on a balanced budget or one that produces some surplus and do not be too dependent on additional income. 

Getting it right
If there is an existing commercial operation within the condominium which may not have followed the correct process, the condominium juristic person together with the property manager could call for an extraordinary meeting (EGM) to address the issue. At the EGM, the co-owners can choose to either keep the operation or to eject it. 

In the event the majority of the co-owners disapprove the operation, the owner of the disapproved operation will be asked to stop the operation. If he fails to do so within an agreed time frame, the condominium juristic person can file a complaint with the local police and court authorities. At this stage it is recommended that the condominium committee to take qualified legal advice to ensure that the matter is professionally taken care of.

After all, it is always wise for co-owners, committees and developers to seek help and advice of qualified and referenced property managers on sensible commercial options in a condominium. Without the correct advice a condominium could get into an operational mess.

Author: Dexter Norville, Director of iproperty and asset management, JLL