Change of circumstances: Varying your Maintenance Order
There are more than 148,000 part-commercial, part-residential properties in England and Wales, with flats above shops the most common occurrence.
The market is growing, attracting new investors in search of higher yields and more lenders seeking to capitalise on demand.
£242 million of semi-commercial mortgages were signed off in the three months in the lead up to June, which is a 20 per cent year-on-year rise.
For those with commercial premises with an unused property above, could that space be earning more?
What is driving the boom?
The appeal of part-commercial, part-residential properties is that they can diversify and boost income.
Not only are commercial rents often higher than residential rents, but investors can also typically achieve yields between six and nine per cent.
Risk can be spread by multiple income streams, as if no one is occupying the property, income can still be made from the commercial aspect.
There are also tax advantages which are driving the boom. Mixed-use properties are typically assessed under commercial Stamp Duty Land Tax rates, which can significantly reduce acquisition costs in comparison to residential investments.
These property types may also be advantageous in the long term. If development rights are granted, certain commercial space can be converted to residential use without a full planning application.
What are the risks?
While part-commercial, part-residential properties have a lot of attractive aspects, they are not without risk.
Valuations of properties can be unpredictable, leases can be complicated and the quality of the commercial tenant can have significant impacts.
If there are no repair and reinstatement clauses in the contract, which ensure tenants leave the property in the state they found it in, landlords could be left with hefty bills at the end of tenancy.
Break clauses can also put landlords at risk, as tenants may exercise their right to cut their lease length short. This could destabilise a landlord’s income and leave them out of pocket in the long term.
Nevertheless, part-commercial, part-residential properties are increasingly being viewed as an attractive asset for landlords prioritising strong returns and flexibility.
Speak to a solicitor
Our legal experts can help landlords understand the planning requirements and lease nuances when considering an investment in a part-commercial, part-residential property.
We can review or draft residential and commercial agreements, identifying any risks that may impact long-term income and growth.
Thinking of investing in part-commercial, part-residential properties? Speak to our solicitors for guidance.
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