Commercial interests sometimes cloud judgements. This is apparent in many situations, and the management of condominium developments is no exception.
It is not unusual for a commercial entity _ be it a convenience store, spa or restaurant _ to want to open within a residential compound. Such businesses are a benefit to residents and can be lucrative for their operators. But regardless of the benefits, or potential profits, commercial ventures within residential developments are subject to very strict rules.
Companies can operate within a residential compound on condition that:
- The development has an allocation of commercial units indicated on its construction plans.
- Approval for non-planned space is granted, in the form of a vote, by more than 50% of the development's co-owners.
- The commercial space has a clearly defined lease indicating its terms of operation.
Of course, there are many instances where the above rules have been disregarded. This might be the result of a misunderstanding on the part of the juristic person committee, co-owners or developers, or a flagrant disregard of the rules.
In some cases, management committees enter into agreements with business operators when they actually don't have the authority to do so.
Similarly, some co-owners hold the mistaken belief that because they own a unit within a residential development, they can use it in any way they see fit _ including as a commercial operation.
In actual fact, condominium units are for residential purposes only, and cannot be used for commercial purposes unless, as stated above, at least 50% of the co-owners agree to a redesignation.
Simply being the owner of a unit is not a green light for setting up a shop within its walls.
With regard to units that have been specifically designated as commercial spaces, developers must also reach an agreement with the condominium's management team to handle any future resales or leasing arrangements.
Sometimes, a developer will retain a presence within the compound to manage these services, but any such transactions still need to be approved by the juristic committee.
STRIKING A BALANCE
Deciding how many commercial units to include within a condominium development is, of course, standard practice.
In most cases, and especially in resort locations, the development will feature at least one cafe/restaurant and some form of convenience store. Other units might include a laundry, beauty salon or other commonly used facility.
Once the decision has been made, the developer must clearly indicate all units designated as being for commercial use on its building plan. Any subsequent changes to that plan must be registered with the relevant authorities.
Another key fact is that commercial units must have clearly defined exit and entrance. The rules state that they must not block access to any of the development's common areas.
Developers have the right to sell their commercial units to whomever they choose, and a suitable agreement is drawn up between the two parties.
The owners of commercial units have the same voting rights at general meeting as all other co-owners, and they must also abide by the same rules and regulations as everyone else.
These include making contributions to the common area management and sinking funds.
The owners of commercial units must also arrange separate insurance for their premises.
PROPER PREPARATION
The correct procedure for allowing additional common space to be used for commercial purposes is to present the idea to the condominium management committee.
If the committee agrees to the idea in principle, its chairman can include the request and proposal on the agenda of the annual general meeting.
Once the meeting has voted in favour of the proposed commercial activity, a suitable lease can be drawn up between the condominium's juristic manager and the operator of the business.
It is important to note that permission for commercial operations cannot be granted by the condominium committee, the juristic manager or the property management team.
In addition, co-owners, committees and the management teams 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.
As a rule, condominiums should run on a balanced budget or one that produces some surplus and should not be too dependent on additional income.
GETTING IT RIGHT
If there is an existing commercial operation within the condominium that might not have followed the correct procedures, the condominium juristic person together with the property manager can call an extraordinary general meeting to address the issue. Here the co-owners can choose to keep or reject the business.
In the event that the majority of the co-owners vote against, the owner of the business will be asked to cease operating. If he or she 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 the condominium committee takes legal advice to ensure that the matter is taken care of professionally. After all, it is always wise for co-owners, committees and developers to seek the advice of property managers on what constitutes sensible commercial options in a condominium. Without the correct advice, a condominium could get into an operational mess.
Dexter Norville is a director of property and asset management at Jones Lang LaSalle. For advice on property management, email dexter.norville@ap.jll.com or see www.joneslanglasalle.co.th