Mixed-Use Communities: The Residential Tenant's Perspective

Property Easements

Unlike typical residential communities, mixed-use residential properties are subject to a multitude of burdensome easements. The types of easements include, but are not limited to: Encroachment Easements, General Construction Easements, Emergency Access Easements, Pedestrian Easements, Vehicular Easements, Utility Easements, Slope Easements, Signage Easements, Grading Easements, Cross Utility Easements, Easements for Enforcement, and Access. Most of these easements are typically reserved for the benefit and use of the developer and can seem invasive. One easement commonly contained in the declarations is the Cross Utility Easement:

Developer hereby reserves for its own benefit and for the benefit of each Tenant and its respective successors and assigns non-exclusive, perpetual easements, rights and privileges of ingress, egress, access, passage and use, on, over and across those portions of adjacent Building Site(s) which contain utility systems, structures, lines, pipes and other related utility Improvements that are shared and utilized by both said Tenant or Occupant and the Tenant or Occupant of the adjacent Building Site (the 'Shared Facilities') for the purpose of installing, maintaining, operating, repairing or replacing said Shared Facilities; provided, however, the easement in this Section shall terminate at such time, if ever, as the Shared Facilities are dedicated to a Governmental Authority or utility provider.

While the volume of easements may seem excessive, they are necessary for this type of community in which the units are closely connected. In addition, not all of these easements are burdensome to the residential tenant, and some of these easements do benefit the tenant. However, it is the close proximity of the uses of these easements and how they infringe upon each other that becomes problematic for the residential tenant. Consequently, a careful tenant should make sure that if the developer or the association is exercising its rights under any of the easements, the declarations provide that: a) all costs are borne by the entity exercising its rights; b) the tenant is given reasonable notice prior to the use of the easement; c) any work shall be done reasonably to minimize any interruption and interference to the tenant's normal use of the property; and d) the tenant's property shall be left in clean and good condition, with all landscaping restored to previous condition and all debris removed.

Parking

Often, the declarations' particular rules for parking specifically determine where, when, and how many parking spaces are allowed per unit. For example:

No Tenant may keep or bring onto the community more than a reasonable number of vehicles per Unit at any time, as determined by the Board. The Board may adopt reasonable rules limiting the number of vehicles which may be parked at the community. Vehicles may be parked only in designated parking spaces or other areas authorized in writing by the Board. Unless and except to the extent that the Occupants of a Unit shall have more vehicles than the number of garage parking spaces serving their Unit, all vehicles shall be parked within such garage parking spaces. Vehicles may be parked in the driveway serving a Unit only after all of the garage parking spaces serving such Unit have vehicles parked in them.

Unless a tenant has several vehicles, compliance with parking regulation is not problematic. However, parking restrictions can be awkward for the guests of a residential tenant, as the additional parking for guests is not always immediately in the vicinity of the residential tenant's unit. Moreover, guests will be forced to compete with retail customers for parking in the common areas. Due to the inconvenience of additional parking, guests will be tempted to park in fire lanes, on grassy areas, or simply park in a space reserved for another unit. To deal with parking enforcement, the declarations usually provide the community's association with a right to tow the vehicle immediately without notice. In addition, the community's board or association may also elect to impose penalties and fines on the unit tenant:

If a vehicle is parked in a fire lane, is blocking another vehicle or access to a Unit or parking space, is obstructing the flow of traffic, is parked on any grassy area, is parked in a space which has been assigned as exclusively serving another Unit, or otherwise creates a hazardous condition, no notice shall be required and
the vehicle may be towed immediately. If a vehicle is towed in accordance with this subsection, the Declarant, its affiliates, the Association, the Master Association and the Commercial Association, and any director, officer, employee or agent of any of the foregoing, shall not be liable to any Person for any claim of damage as a result of the towing activity. The Association's right to tow is in addition to, and not in limitation of, all other rights of the Association, including the right to assess fines. The Board may elect to impose fines or use other available sanctions, rather than exercise its authority to tow.

As you can see from the above provision, many of these covenants in mixed-use projects only address parking enforcement and do not address the issue of separate and sufficient parking for residential versus commercial use tenants, which is an issue. Many residential tenants do not want the guests of other residential tenants or the guests/customers of commercial tenants parking in their parking spaces.

Utility and Common Expenses

The residential tenant's obligation regarding utilities extends to a wide variety of common areas and common facilities, including, but not limited to, items such as street lights, drainage, sewer, gas, electric, landscaping, trash removal, pest control, and certain policies of insurance. There is greater responsibility and cost associated with maintaining the common areas and common facilities of mixed-use communities because there is greater consumption and use of these items in a mixed-use setting. The declarations often set forth the following language to provide a minimal non-exclusive outline of the initial scope of utility costs associated with the community:

Utility charges for utilities (excluding, however, expenses and costs associated with the maintenance and operation of any utilities which cannot be or which are not dedicated to a Governmental Authority or private utility company for maintenance) serving the Common Areas and Common Facilities, including, without limitation, costs and expenses associated with street and road lighting, drainage facilities, and sewer, gas, electric, and telecommunication charges and expenses, and any costs and expenses associated with the landscaping of the Common Areas, including any costs and expenses associated with trash collection and removal, pest and rodent control measures, and maintenance of and repairs to the Property, and the costs and expenses incurred in connection with the procurement and maintenance of comprehensive general liability insurance, property damage insurance, directors' and officers' insurance, and any other insurance required to be maintained by the Master Tenants' Association hereunder or which the Board of Directors may from time to time approve.

Typically, the residential tenant is often required to pay a pro rata portion of these expenses as part of the community's annual assessments and fees; however, due to the wide range of expenses, the residential tenant may be expected to pay significantly more in association dues than in the typical residential setting.

Safety

As with any residential community, safety should be a priority. Safety includes protection from crime, fire, and other catastrophic acts of others that may cause harm. The safety concerns of commercial establishments become the concerns of the residential tenants, and vice-versa. Due to the nature of the mixed-use community and the volume of persons entering and exiting the community, a residential tenant is conceivably exposed to an increased likelihood of instances of personal harm and property loss. For example, a restaurant fire can affect the entire community with smoke and fire damage, as well as excessive water damage resulting from the fire department's efforts to control the fire. With respect to crime, commercial establishments arguably attract more criminals and have a higher instance of crime. Typically, this would include crimes such as shoplifting or theft in the parking lot. Unfortunately, given its proximity to the residential units, other opportunities arise for criminal activity that would not normally be available in a commercial setting. In some cases, the mixed-use community will provide active security during the business hours of its commercial tenants; however, the association does not provide any security for residential tenants during nights and weekends (when criminal activity is usually at its peak). Instead of increasing security and protection, the declarations usually expressly attempt to limit and negate the association's liability due to harm or loss as a consequence of fire, criminal activity, or other loss:

The Declarant and the Association may, but shall not be obligated to, maintain or support certain activities within the community designed to make the Community and the Units safer than they otherwise might be. However,the Association, The Master Association, the Commercial Association, the Declarant, its partners and affiliates, any successor Declarant, and their respective officers, directors, committees, members, shareholders, employees, agents, successors and assigns, shall not in any way be considered insurers or guarantors of security within the community, nor shall any of the foregoing be held liable for any loss or damage by reason of failure to provide adequate security or of ineffectiveness of security measures undertaken. No representation or warranty is made that any fire protection system, burglar alarm system or other security system cannot be comprised or circumvented. Furthermore, there is no guarantee from anyone that non-unit tenants and non-occupants will not gain access to the community and commit criminal acts on the community, nor is there any guarantee that criminal acts on the community will not be committed by other unit tenants or occupants.

Prior to leasing a unit, a residential tenant should fully investigate the instance of crime in the mixed-use community as well as be fully prepared for potential fire hazards and loss occasioned by crime. In addition, a residential tenant should consider obtaining comprehensive insurance options that can provide adequate coverage for such potential losses.

Conclusion

With any lease, a potential tenant should be informed before he makes a decision and should carefully review the declarations of the mixed-use community prior to leasing any property in that community. In today's market, tenants are a hot commodity, and many landlords are vying for their attention. Mixed-use communities are a great living choice due to their heavy foot traffic, great location, and liveliness; however, a potential tenant should consider the benefits versus the burdens of living in that mixed-use community. Of course, each community has its own set of rules and regulations, and the examples set forth in this article may not appear in every community's declarations. Nonetheless, potential tenants should become fully informed of the declarations so as to avoid unnecessary penalties, fines, and other harsh actions from the community's association. Simply put, a tenant should be informed!

Nadine Sophia Evans is an associate at Atlanta's Alston & Bird, LLP. Her practice includes advising clients in transactions involving the sale and acquisition of commercial real estate, financing, development, leasing, and the day-to-day operation of commercial real property.

Mixed-use communities provide an attractive housing option to tenants seeking alternatives to traditional family homes and condominiums. Due to the proximity of commercial establishments, a symbiotic relationship exists between the residential tenants and the commercial tenants. For the commercial tenants, the residential tenants are a captive audience and strong consumer base. For residential tenants, there are several unique advantages of co-existing with commercial tenants, such as instant access to shopping and restaurants. Despite the attraction and convenience, there are special considerations that potential residential tenants should weigh prior to becoming members of a mixed-use community. Specifically, before committing to membership in a mixed-use community, potential tenants should carefully review the terms contained in the community's declaration of protective covenants, conditions, restrictions, and easements (herein referred to as the 'declarations'). The following is an enumeration of significant considerations that should be examined when reviewing the declarations.

Architectural Review Committee

Inevitably, residential tenants will want to personalize their unit and make alterations after taking control of the premises. Often, this will conflict with the developer's desire to protect the consistency, aesthetics, and (most importantly) the marketability of the community. Therefore, when a residential tenant wants to make any alteration to the premises, the residential tenant is subject to relatively burdensome guidelines, approvals, and procedures. For example, all plans, designs, and specifications for proposed work must likely be submitted to an architectural review committee (or similar entity) for approval. Most declarations contain strict rules and procedures that must be complied with prior to starting any work. The restrictions not only determine what type of work will be performed, but in some cases, who will be approved for performing the work. Moreover, the approval process can be highly subjective, and approval is not guaranteed. An example of the language setting forth these guidelines is as follows:

Except as provided herein, no Tenant, Occupant, or any other Person (including, without limitation, the Association) may make any encroachment onto the Common Elements or Limited Common Elements, or make any exterior or interior change, alteration, or construction in or to a Unit (including painting, utility work and/or alteration, installation of alarms and/or alarm systems, and landscaping), nor erect, place or post any object, sign, clothesline, speaker, playground equipment, light, storm door or window, door knob or knocker, artificial vegetation, exterior sculpture, fountains, flags, or thing on the exterior of the buildings (except for reasonable seasonal decorations displayed in only windows between Thanksgiving and January 15), in any windows (except window treatments as provided herein), on any Limited Common Elements or on any other Common Elements, without first obtaining the prior written approval of the Architectural Control Committee (ACC).

Usually these architectural review committees are the sole arbiters of alteration applications and may withhold approval for any reason, including purely aesthetic considerations. Moreover, the committee is often endowed with the power to stop any construction that is not in conformance with approved plans. If a tenant decides to make an alteration to her unit without first seeking the permission of the architectural review committee, the tenant does this at her sole risk, and the unauthorized alterations may be subject to possible removal by the association at any time. If the alteration was made to the common area, then sometimes these changes are allowed to remain without reimbursement to the tenant for any expense. Although these rules are strict, a careful residential tenant should make sure the community's declarations contain some flexibility for variances from compliance with design criteria.

Property Easements

Unlike typical residential communities, mixed-use residential properties are subject to a multitude of burdensome easements. The types of easements include, but are not limited to: Encroachment Easements, General Construction Easements, Emergency Access Easements, Pedestrian Easements, Vehicular Easements, Utility Easements, Slope Easements, Signage Easements, Grading Easements, Cross Utility Easements, Easements for Enforcement, and Access. Most of these easements are typically reserved for the benefit and use of the developer and can seem invasive. One easement commonly contained in the declarations is the Cross Utility Easement:

Developer hereby reserves for its own benefit and for the benefit of each Tenant and its respective successors and assigns non-exclusive, perpetual easements, rights and privileges of ingress, egress, access, passage and use, on, over and across those portions of adjacent Building Site(s) which contain utility systems, structures, lines, pipes and other related utility Improvements that are shared and utilized by both said Tenant or Occupant and the Tenant or Occupant of the adjacent Building Site (the 'Shared Facilities') for the purpose of installing, maintaining, operating, repairing or replacing said Shared Facilities; provided, however, the easement in this Section shall terminate at such time, if ever, as the Shared Facilities are dedicated to a Governmental Authority or utility provider.

While the volume of easements may seem excessive, they are necessary for this type of community in which the units are closely connected. In addition, not all of these easements are burdensome to the residential tenant, and some of these easements do benefit the tenant. However, it is the close proximity of the uses of these easements and how they infringe upon each other that becomes problematic for the residential tenant. Consequently, a careful tenant should make sure that if the developer or the association is exercising its rights under any of the easements, the declarations provide that: a) all costs are borne by the entity exercising its rights; b) the tenant is given reasonable notice prior to the use of the easement; c) any work shall be done reasonably to minimize any interruption and interference to the tenant's normal use of the property; and d) the tenant's property shall be left in clean and good condition, with all landscaping restored to previous condition and all debris removed.

Parking

Often, the declarations' particular rules for parking specifically determine where, when, and how many parking spaces are allowed per unit. For example:

No Tenant may keep or bring onto the community more than a reasonable number of vehicles per Unit at any time, as determined by the Board. The Board may adopt reasonable rules limiting the number of vehicles which may be parked at the community. Vehicles may be parked only in designated parking spaces or other areas authorized in writing by the Board. Unless and except to the extent that the Occupants of a Unit shall have more vehicles than the number of garage parking spaces serving their Unit, all vehicles shall be parked within such garage parking spaces. Vehicles may be parked in the driveway serving a Unit only after all of the garage parking spaces serving such Unit have vehicles parked in them.

Unless a tenant has several vehicles, compliance with parking regulation is not problematic. However, parking restrictions can be awkward for the guests of a residential tenant, as the additional parking for guests is not always immediately in the vicinity of the residential tenant's unit. Moreover, guests will be forced to compete with retail customers for parking in the common areas. Due to the inconvenience of additional parking, guests will be tempted to park in fire lanes, on grassy areas, or simply park in a space reserved for another unit. To deal with parking enforcement, the declarations usually provide the community's association with a right to tow the vehicle immediately without notice. In addition, the community's board or association may also elect to impose penalties and fines on the unit tenant:

If a vehicle is parked in a fire lane, is blocking another vehicle or access to a Unit or parking space, is obstructing the flow of traffic, is parked on any grassy area, is parked in a space which has been assigned as exclusively serving another Unit, or otherwise creates a hazardous condition, no notice shall be required and
the vehicle may be towed immediately. If a vehicle is towed in accordance with this subsection, the Declarant, its affiliates, the Association, the Master Association and the Commercial Association, and any director, officer, employee or agent of any of the foregoing, shall not be liable to any Person for any claim of damage as a result of the towing activity. The Association's right to tow is in addition to, and not in limitation of, all other rights of the Association, including the right to assess fines. The Board may elect to impose fines or use other available sanctions, rather than exercise its authority to tow.

As you can see from the above provision, many of these covenants in mixed-use projects only address parking enforcement and do not address the issue of separate and sufficient parking for residential versus commercial use tenants, which is an issue. Many residential tenants do not want the guests of other residential tenants or the guests/customers of commercial tenants parking in their parking spaces.

Utility and Common Expenses

The residential tenant's obligation regarding utilities extends to a wide variety of common areas and common facilities, including, but not limited to, items such as street lights, drainage, sewer, gas, electric, landscaping, trash removal, pest control, and certain policies of insurance. There is greater responsibility and cost associated with maintaining the common areas and common facilities of mixed-use communities because there is greater consumption and use of these items in a mixed-use setting. The declarations often set forth the following language to provide a minimal non-exclusive outline of the initial scope of utility costs associated with the community:

Utility charges for utilities (excluding, however, expenses and costs associated with the maintenance and operation of any utilities which cannot be or which are not dedicated to a Governmental Authority or private utility company for maintenance) serving the Common Areas and Common Facilities, including, without limitation, costs and expenses associated with street and road lighting, drainage facilities, and sewer, gas, electric, and telecommunication charges and expenses, and any costs and expenses associated with the landscaping of the Common Areas, including any costs and expenses associated with trash collection and removal, pest and rodent control measures, and maintenance of and repairs to the Property, and the costs and expenses incurred in connection with the procurement and maintenance of comprehensive general liability insurance, property damage insurance, directors' and officers' insurance, and any other insurance required to be maintained by the Master Tenants' Association hereunder or which the Board of Directors may from time to time approve.

Typically, the residential tenant is often required to pay a pro rata portion of these expenses as part of the community's annual assessments and fees; however, due to the wide range of expenses, the residential tenant may be expected to pay significantly more in association dues than in the typical residential setting.

Safety

As with any residential community, safety should be a priority. Safety includes protection from crime, fire, and other catastrophic acts of others that may cause harm. The safety concerns of commercial establishments become the concerns of the residential tenants, and vice-versa. Due to the nature of the mixed-use community and the volume of persons entering and exiting the community, a residential tenant is conceivably exposed to an increased likelihood of instances of personal harm and property loss. For example, a restaurant fire can affect the entire community with smoke and fire damage, as well as excessive water damage resulting from the fire department's efforts to control the fire. With respect to crime, commercial establishments arguably attract more criminals and have a higher instance of crime. Typically, this would include crimes such as shoplifting or theft in the parking lot. Unfortunately, given its proximity to the residential units, other opportunities arise for criminal activity that would not normally be available in a commercial setting. In some cases, the mixed-use community will provide active security during the business hours of its commercial tenants; however, the association does not provide any security for residential tenants during nights and weekends (when criminal activity is usually at its peak). Instead of increasing security and protection, the declarations usually expressly attempt to limit and negate the association's liability due to harm or loss as a consequence of fire, criminal activity, or other loss:

The Declarant and the Association may, but shall not be obligated to, maintain or support certain activities within the community designed to make the Community and the Units safer than they otherwise might be. However,the Association, The Master Association, the Commercial Association, the Declarant, its partners and affiliates, any successor Declarant, and their respective officers, directors, committees, members, shareholders, employees, agents, successors and assigns, shall not in any way be considered insurers or guarantors of security within the community, nor shall any of the foregoing be held liable for any loss or damage by reason of failure to provide adequate security or of ineffectiveness of security measures undertaken. No representation or warranty is made that any fire protection system, burglar alarm system or other security system cannot be comprised or circumvented. Furthermore, there is no guarantee from anyone that non-unit tenants and non-occupants will not gain access to the community and commit criminal acts on the community, nor is there any guarantee that criminal acts on the community will not be committed by other unit tenants or occupants.

Prior to leasing a unit, a residential tenant should fully investigate the instance of crime in the mixed-use community as well as be fully prepared for potential fire hazards and loss occasioned by crime. In addition, a residential tenant should consider obtaining comprehensive insurance options that can provide adequate coverage for such potential losses.

Conclusion

With any lease, a potential tenant should be informed before he makes a decision and should carefully review the declarations of the mixed-use community prior to leasing any property in that community. In today's market, tenants are a hot commodity, and many landlords are vying for their attention. Mixed-use communities are a great living choice due to their heavy foot traffic, great location, and liveliness; however, a potential tenant should consider the benefits versus the burdens of living in that mixed-use community. Of course, each community has its own set of rules and regulations, and the examples set forth in this article may not appear in every community's declarations. Nonetheless, potential tenants should become fully informed of the declarations so as to avoid unnecessary penalties, fines, and other harsh actions from the community's association. Simply put, a tenant should be informed!

Nadine Sophia Evans is an associate at Atlanta's Alston & Bird, LLP. Her practice includes advising clients in transactions involving the sale and acquisition of commercial real estate, financing, development, leasing, and the day-to-day operation of commercial real property.