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When a building owner leases their property, it will typically either be as a commercial property lease or a residential premises. However, it is possible to have mixed-use properties. As a result, the lease agreement can allow tenants to lease the premises for more than one reason. This article explains what you need to know about an agreement to lease for a mixed-use lease.
What is a Mixed Use Lease?
A mixed-use lease is a property lease for one building with mixed uses. This could be, for example, different uses for different floors of the building.
There are many different ways you can divide buildings for mixed use. However, commercial and residential areas tend to be separate. This separation is usually vertical in the building. You will often see a division between each area into separate units such as flats and then shops and offices. Another typical example is a residential flat over a commercial shop.
Often, with a mixed-use lease, the residential use is an addition to the commercial use. Therefore, the residential use is for the business that occupies the building. This means the lease agreement will be commercial as the prominent tenancy.
The lease agreement might state that the lease is commercial. However, the law can state otherwise, depending on the criteria in the Landlord and Tenant Act 1954. As a result, the commercial activity in the mixed-use lease must be the main reason for occupation but does not need to be the entire reason.
Commercial Use Class
Not only is a mixed-use lease a mixture of residential and commercial use, but the commercial part can contain a mix of commercial uses. This means that the activities businesses can carry out in the commercial part of the building may differ, provided they comply with one of the permitted uses in the commercial lease.
Commercial use class describes what you can lawfully carry out. For example, Class E includes a mix of types of commercial activities. The types of commercial activity which fall under Class E include, for example:
- shops;
- hairdressers;
- internet cafes;
- post offices and dry cleaners;
- estate agents;
- gyms; and
- offices.
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What Does a Mixed-Use Lease Agreement Look Like?
A mixed-use lease agreement is a legally binding contract between a property owner and a business owner. If you lease a building with mixed-use to the same person or business, such as a shop with a flat above it, you may wonder what the lease agreement looks like.
A mixed-use lease agreement is similar to a standard commercial lease type. You should note that if the lease term is longer than seven years, you must register it with the land registry.
A mixed lease agreement can cover:
- the rental amount and other payment provisions;
- an alterations clause;
- the condition and repair responsibilities;
- the tenants’ obligations concerning the residential use part of the lease;
- rules on sub-letting;
- rules on assignment;
- any precondition to develop the property further; and
- any land registration requirements.
It is essential to note that if the lease term is over seven years, you must register the mixed lease with the Land Registry. A prescribed lease clause can sum up the main provisions of the mixed-use lease when doing so.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
It is possible to have an agreement to lease for a mixed-use lease. This is where a property has more than one use. It may be a singular property so, for example, be a shop below with residential space above. Alternatively, a mixed-use lease can be a large building with a vertical divide, where part of it contains commercial leases, such as for shops, offices and residential flats. As a result, an agreement to lease for a mixed-use lease may detail different commercial use classes. This indicates what a business tenant is legally entitled to do in the property as their commercial activity.
If you need help understanding an agreement to lease for a mixed-use lease, LegalVision’s experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
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