With the downward turn in the economy and the upcoming trends regarding environmental and life-style concerns, a new focus has been brought on the concept of developing projects to include both residential and commercial components. Generally conceived closer to city or as their own “town” centers, mixed-use projects may include multi-story buildings consisting of offices and stacked residential flats over street level retail or restaurant spaces, “horizontal” developments consisting of street front commercial units with a residential component at the back of the project, or any other number of variations.
The interests and priorities of commercial occupants in a mixed-use project do not always square with those of the residential occupants. For example, while retailers may want increased vehicular and foot traffic and vibrant “street life” to foster their business, residents may want to restrict traffic to foster a quieter, “more residential” feel. Residents may want to focus maintenance dollars on amenities and other interior common areas from which the commercial occupants are probably restricted. To say the least, operating and maintaining a community in which owners of differing types of property have competing interests and priorities can be a challenge for both business owners and residents. In master-planned mixed-use communities, the manner in which the community is legally established will impact the extent to which the residents may exercise authority over the use and maintenance of certain facilities serving the community and allocation of association costs. This article will consider three areas of concern in to mixed-use communities where the legal framework impacts the extent of such authority: parking, cost sharing and use.
The amount and location of available parking is often at issue in mixed-use communities. In most municipalities in the metro Atlanta area, zoning requirements mandate a certain number of parking spaces for a project based on the size and use of the commercial areas and the number of residential units. The community’s governing documents determine who has rights to use and control the parking areas of a project. For example, if a mixed-use community is structured under the umbrella of a master association with each of the residential and commercial components under separate sub-associations, the parking area might not even legally be part of the residential component. In situations like this, the residents may have rights to use certain parking spaces, but they have no authority to control access or traffic patterns. The residents may be in a similar position where the residential and commercial components are completely separate tracts without an umbrella association but are covered by an easement and cost sharing agreement, which establishes a shared use, maintenance and cost sharing arrangement. Some developments have separate, stand-alone parking components that are leased back to a residential association or another third party. These arrangements are completely project specific, and it would be prudent for a board of directors to review the legal framework for their community in order to understand the scope of their association’s authority in this respect.
The allocation of common expenses in mixed-use communities also tends to cause a great deal of confusion. The 2009 opinion of the Georgia Court of Appeals in Museum Tower Condominium Association, Inc. v. The Children’s Museum of Atlanta, Inc., 297 Ga. App. 84 (2009), illustrates this. That case involved a mixed-use condominium consisting of 167 stacked residential flats over 2 street-level commercial units. The condominium declaration established certain interior areas and amenities of the building as limited common elements available only for use by the residential units. The condominium association levied assessments against the commercial units based on the percentage interest in the common elements for all association expenses and without any setoff for expenses related to those limited common elements exclusively serving the residential units. The commercial unit owner insisted that they should not be charged for costs associated with areas of the condominium available for use only by the residential units. In reviewing the language of the assessment provision of the condominium declaration, the Court found that the board was required to assess any expenses associated with the limited common elements against the units to which the limited common elements are assigned. Therefore, the association could not charge the commercial units for these areas. Similar to the situation with parking, the manner in which costs may be allocated in a mixed-use community depends on the particulars of the governing documents and, therefore, may vary from project to project.
A long-standing general rule under Georgia law is that the owner of land has the right to use the property for any lawful purpose, and restrictions upon an owner’s use of the property must be clearly established and must be strictly construed. If the residential and commercial components are under a single association, the governing documents generally will spell out some specific allowed and prohibited uses; however, the commercial component will likely be treated differently than the residential component with respect to use restrictions, maintenance obligations and common expense assessment obligations. Further, the governing documents may require that, to be effective, any covenant amendment or rule that adversely impacts the commercial component must be approved by the commercial owner(s). Where the residential and commercial components are established as separate sub-associations under a master association, any issue the residential association has with the commercial uses would likely need to be addressed at the master association level. Both the residential and the commercial components likely will have representation on the master association board; and any significant changes or enforcement action would likely require cooperation and compromise on behalf of both groups. Similarly, where the different components are established as separate tracts covered by an easement and cost sharing agreement, the residential component will have little say into how the commercial component operates unless expressly set forth in the easement and cost sharing agreement and as controlled by local or state law.
The legal framework of mixed-use communities presents unique and, sometimes, complicated issues with respect to how the owners within the various components interact and may give input into the governance of the community. Regardless of the legal framework, if both the commercial and residential owners are sensitive to the interests and concerns of their mixed-use neighbors and actively cooperate in the administration of the community, the interests of both parties will be protected. The better the owners know the governing documents and the more they know before they purchase in such a community, the more likely it is that their expectations with respect to the community’s governance will be met and that community as a whole ultimately succeeds.