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The Lay of the Land DEVELOPMENTS IN CANADIAN REAL PROPERTY LAW

Commercial Condo Purchaser Tips

Posted in Commercial, Residential
D. James Papadimitriou

With the continued exponential growth in mixed use developments which often take the form of separate components subject to condo declarations and in many cases multiple condo declarations as between the residential and commercial components, buyers and mortgage lenders will consider additional factors during their due diligence and as part of future management of the various components.

In a mixed use developments not governed by a condo declaration, the additional management issues will typically be dealt with in relatively straightforward easement and cost sharing agreements.

Considering a condo declaration in a transaction adds another layer of complexity as these are quasi title documents that are often subject to statutory regimes designed primarily for residential properties and awkward at times for regulating relationships between a residential component (which itself might be subject to an additional internal condo declaration) and a commercial component.

Particular care should be taken in considering approval levels for common area alterations and cost sharing as well as other governance matters.

Any amendments that a particular buyer may require to the condo declaration may only be possible while the developer still controls the condo board before residential units are fully sold.

A mortgage lender should also carefully review the structure, particularly as it pertains to use of insurance proceeds as these are often baked into the condo declaration and a mortgage lender will have to abide by same on any destruction.

The commercial component owner will also have to pay particular attention to allocation of costs and taxes to its commercial tenants as many of these will be determined by formulas under the condo declaration.

Finally if the residential component is not entirely completed, the commercial component owner should consider protections against the risk of construction liens that may be generated by such activity on the residential component that might impact the commercial component.

The proliferation of these innovative structures across property classes will result in increased vigilance and condo expertise with hopefully an identifiable class or cadre of condo directors for mixed use projects.