Mixed use development is on the rise in North America and includes a variety of significant considerations.
One important consideration relates to non-condominium strata title developments. In these developments, positive obligations do not run with the land and are only enforceable in contract against subsequent owners. Furthermore, lawyers need to construct a regime of permitted transfers, rights of first refusal to purchase adjoining lands, and mandatory assumption agreements to make sure that owners of a strata title mixed use project always have privity of contract with their vertical or horizontal neighbours in the same project.
A further consideration is the significance of a cost sharing agreement. This agreement specifies, prior to commencement of construction, who will be responsible for what cost, both hard and soft, in the development and construction of a mixed use, mixed owner project. A welldrafted cost sharing agreement can minimize the chance of future disputes.
Lastly, it is typical in most mixed use projects to have a shared services or reciprocal operating agreement post construction. This agreement will potentially set out the following in detail:
- responsibility for maintenance repairs and replacements for any common areas;
- requirements for joint building insurance;
- individual insurance for each owner’s premises;
- the right of first refusal to purchase an adjoining owner’s interest if it is put on the market;
- restrictions on street level and building top signage that may be installed;
- the creation of an insurance trustee regime for major damage that might occur;
- a governance process setting out regular meetings; and
- the creation of an annual budget for shared facilities and common area maintenance repair and replacement costs.
In addition to the foregoing, when each owner has their own separate financing to arrange, matters can get complicated as each lender will wish to review all major agreements. Mixed use developments are complicated but workable, and can result in great profitability.