You’re probably aware of many commercial/retail spaces that exist on the main floor of a condominium at street level, but let’s take a look at why a developer includes this space, the form of ownership, and how they pay taxes and maintenance on the space…
Quick – think of any condominium in the city, and now try and picture what’s located on the ground level.
Throw out some condos really quick:
DNA – GNC & Starbucks
Minto Midtown – TD Bank
The Richmond – Tim Horton’s
East Lofts – ScotiaBank
There’s a good chance that some of the businesses and establishments that you frequent are located in a condominium building, whether you recognize it or not. Many of these establishments look like simple ground-floor storefronts but stop and look up; are there 250 condominium units above your beloved Cinnabon?
One of the oldest condominiums in the downtown core is “The Summit” complex at 705 King Street West, and their claim-to-fame, at the time, was having an “in house” grocery store that spoiled the residents by allowing them to shop for groceries in their pajamas without ever having to leave the building!
That grocery store is now one of the very few Kitchen Table locations left in the city (is there still one in Eglinton subway station?), and it’s frequented by residents of the whole King West area in addition to those at The Slummit….er….I mean Summit.
I’m not sure who the first developer was to incorporate main-floor commercial/retail into a condominium, nor can I pin-point the timeframe during which this became the norm, but I can offer up two major reasons why this came to pass:
1. Residents Don’t Want To Live On The Main Floor
I remember discussing our first-year university living plans with my high school buddy Vlad, and when I suggested that we live on the main floor of an apartment complex, he said, “What? Are you kidding? I don’t wanna get killed!”
Granted, this was the thinking of a naive 18-year-old, but many condominium-buyers automatically say “no” to anything on the ground level both due to the potential lack of safety and privacy.
Some ground-floor units have direct-access from the street (ie. a separate door), which half the buyer pool might welcome, whereas the other half might suggest is an invitation to break-ins.
Other ground floor units have floor-to-ceiling windows which would be a selling point if the unit was on the 28th floor, but instead means the owner has to close all the blinds at night, or be ridiculously comfortable and confident with him or herself as passer-byers can’t help but take a peek.
2. The Bigger Money Is In Retail Space
Whether or not condo-buyers want to live on the main floor, and whether or not those units are saleable, there’s definitely a coffee-chain, bank, or retail venture that would value the space more.
When was the last time you ventured up to second floor of a building to visit a business that had a tiny little sign with an arrow sitting at ground level?
Retail-101 says that you have to make it as easy as possible for people to walk through your front door, and with condominiums being built all over the city on major city streets, the ground-floor spaces is prime real estate for any business!
A developer can get more out of a business than he can out of a condo-buyer, especially when you consider point #1 above.
So how does it work?
What’s the form of ownership?
Flash back a couple of years and I was on the board of directors at a neighbouring condo where a major commercial/retail space on the ground level sat vacant.
We received numerous questions and complaints from condo owners who feared that this vacancy would be costing the condominium corporation money!
These residents were under the impression that the space belonged to the condominium corporation, and that we, as the board of directors, were dragging our feet to get the space leased and bring in that much needed revenue. The residents were concerned that maintenance fees would go up if we weren’t able to recoup “losses” from the vacancy.
I don’t blame residents for wondering what was going on with the commercial/retail space! In fact, that space is still vacant today, and nobody can figure out why!
But we explained to residents that the space is NOT owned by the condominium corporation, but rather a third party who owns that commercial/retail space in the same way as a resident owns his or her condominium unit.
This is the most common form of ownership for commercial/retail spaces. They are sold by the developer in the same way as the condos, and the unit-owner pays maintenance fees to the condominium corporation, hydro to Toronto Hydro, and property taxes to the City of Toronto. The form of ownership is almost identical to that of the residential condo units, except that they’re zoned commercial.
Zoning aside, the units function in exactly the same way. In the case of the empty unit I described above, the condominium corporation had no financial stake in the matter. They were being paid maintenance fees every month, so it was no skin off their back! Whoever owned that unit was just sitting on it; paying taxes and maintenance and losing the potential monthly rent. I have no clue why it’s been vacant for three years. Nobody does, but I digress…
That commercial condominium space can be bought and sold as easily and freely as a residential space could trade hands.
There are, however, some restrictions on the use of the commercial/retail space.
Every condominium declaration is different, and it spells out the permitted and prohibited uses for the space. In some cases, any food/beverage/restaurant business might be prohibited. This could be because the condominium wasn’t equipped with the necessary plumbing/heating and mechanical systems to accommodate a food & beverage business, or it could be because the condo is going for a different “style” altogether; perhaps they’re upscale and they want to avoid having a falafel shop open up next to the lobby.
The type of business you bring into your building might affect perception about the value of the condominium units inside. I can’t imagine that the “Trump Towers” or similar, so-called “luxury” buildings would leave the door open to Coffee Time setting up shop.
The second form of ownership for these commercial/retail condominium spaces is a little different.
The developer might elect to separate the residential units from the commercial/retail units and have them registered as separate corporations.
This wouldn’t be done in a smaller building where you have one commercial/retail space, but if you have a large building where there are five or six commercial/retail spaces, it might make sense.
Those units could be registered as a separate condominium corporation, and thus they would govern themselves separately from the residential units. They would have their own declaration and thus their own reserve fund, budget, maintenance fees, etc. They would likely have a “shared facilities agreement” with the residential condominium corporation to account for expenses that affect both corporations, like security, utilities, snow-clearing, etc.
Some condominiums even have a couple floors of office space above the commercial/retail on the main level, thus it makes far more sense to register the residential condominium units separately.
While these are the two main forms of ownership, there could be exceptions to the rule.
It’s entirely possible that a condominium corporation does own the commercial/retail space on the main floor, but it’s exceptionally rare. Think about how a condominium corporation owns “visitor suites” that are essentially empty condos in the building that get rented out by your grandparents once per year. I’ve seen several condominium corporations sell these units in recent years as they feel that the potential rental income from the suites is far outweighed by the financial windfall they’d receive by selling them outright.
I’ve also seen a condominium corporation so starved for money that they converted their party room and gym into residential units so they could make money to pump back into the reserve fund!
It takes all kinds…
With the popularity of main-floor commercial/retail space constantly on the rise, I’d be surprised if we see ground-level residential units incorporated into new condo developments, unless they offer a patio or something unique to the buyer.
So long as the condo is on a main street, the big money for that ground level unit is made by selling to an investor who can put a commercial tenant in the space.