8 April 2020/ rent_commercial_property_guide

What is a mixed use commercial property?

Whether you’re an investor thinking about purchasing a mixed use commercial property or a prospective tenant on the hunt for one, there are a few things you need to know before taking the plunge. Here’s our comprehensive guide to mixed use commercial properties.

What does mixed use commercial property mean?

Broadly speaking, the term ‘mixed use’ is given to a building or buildings that have been split into domestic units (flats, apartments, houses) and commercial units (shops, restaurants, salons). It covers everything from small high street units, made up of one commercial space and a flat above, to sprawling developments with hundreds of homes and large commercial units all together.

How are they usually laid out?

Mixed use properties or developments are usually configured vertically, with the commercial space on lower floors and the residential units on top. You might also find horizontal mixed use developments, where residential and commercial units sit side by side, though it’s a less common configuration in the UK generally reserved for large developments.

What can a mixed use commercial property be used for?

This will depend on the class of each unit. The most common mixed use property is made up of an A class commercial unit and a C3 class dwelling house. Here’s a quick breakdown of property classes you can expect to find.

Unit Class

Permitted Use

A1 Shops

Shops, hairdressers, travel agencies, sandwich bars, showrooms, dry cleaners, retail warehouses, undertakers, pet shops and internet cafés

A2 Financial and Professional Services

Banks, building societies, professional services providers (like accountants or legal practices), estate agents and employment agencies

A3 Restaurants & Cafés

Businesses that sell food or drink primarily to be eaten on the premises

A4 Drinking Establishments

Pubs, bars and other places where drinking in the main activity (excluding nightclubs)

A5 Hot Food Takeaways

Businesses that sell hot food to be eaten off the premises

C3 Dwelling Houses

Homes of up to six people living together as a single household

C4 Houses in Multiple Occupation (HMO)

Shared home of up to six unrelated people who share facilities such as kitchen and bathroom

It’s very important, for both landlords and tenants, that you’re using a mixed use commercial property appropriately. Let out a unit for the wrong reasons and you could be ordered to apply for costly permissions or remove the unit altogether. And if you’re renting an incorrect unit to live or work in, you could be evicted if your landlord, or the local planning authority, finds out.

Are mixed use commercial properties good for tenants?

A mixed use property can be a great place to live and work. If you’re the commercial tenant, make sure you’re considerate of your residential neighbours, and you’ll enjoy a prime location on a high street or in a city centre. And if you’re the residential tenant, you’ll get to live close to handy amenities, often in the centre of lively, desirable areas. As a landlord, you’ll also need to give some thought to the tenants you let your property to if you want to keep both happy and avoid regular conflicts.

You might have your eye on renting a mixed use property as you want to live and work in the same place. However, the commercial and residential units are generally let separately, largely due to the different lengths of their leases. Commercial property leases last, on average, for around seven years, while a residential tenant could move on in just a few months. A4 properties are an exception here, as the tenant upstairs is generally the person running the pub/bar downstairs.

If you do have your heart set on somewhere you can both live and work, it’s worth keeping your eye on new developments where you can snap up home and business premises up at the same time. You could also register your interest with a local commercial agent, so you’re the first to hear if a whole mixed use property goes on the market. 


Why are mixed use commercial properties a good investment?

Lots of investors are drawn to mixed use commercial properties as, for tax purposes, they’re considered a solely commercial property. This classification means they have a higher stamp duty threshold (£150,000 compared to £125,000 for residential properties). Properties that can command more than one rent are also attractive, as you’ll have multiple sources of income every month. If demand for commercial properties goes south, you’ll also have the option of converting both units into solely residential ones, too.

Can I convert a property into mixed use?

If you’ve purchased an A1 or A2 class property which is solely commercial, you’re allowed to convert it into a mixed use building with up to two flats. Check with your local planning authority first. It’s vital to make sure you’ve got the right planning permission, or that there aren’t other constraints (such as the building being listed) that might affect your plans. The buildings previous owner may have already successfully applied to convert the property, so make sure you ask them first before wasting time and money on another application. 

Other commercial property classes, including B1, B2, C, D and Sui Generis (any property that doesn’t fall into other classes, such as scrap yards and casinos), can’t be converted into a mixed use property. However, you can still convert these properties into a solely residential unit if they’re not as profitable as commercial premises.

What are the potential problems?

Mixed use commercial properties might sound attractive, but there are several potential problems you might need to overcome as a tenant or a landlord.

  • You won’t be able to purchase a mixed use property with a traditional buy-to-let mortgage. Even specialist mortgage providers will generally only loan you a maximum of 75% of the property’s value. Many providers also have rates as high as 6%, alongside higher fees. This means they’re a better venture for experienced property developers and investors that have the significant liquid capital needed.
  • You’ll need specialist insurance. Most residential or commercial insurance policies won’t cover you for a whole mixed use property. You could arrange a separate insurance policy for each unit, but this can be costly and a lot of hassle. Speak to an insurance broker or insurance company that specialises in mixed commercial and residential policies to make sure you’re properly covered.
  • You’ll be letting property in two different sectors. Landlords that have only let commercial or residential properties before might not be aware of the challenges associated with the other unit type. You might also find managing two very different lets difficult without prior experience. Speak to a solicitor or trusted lettings agency with knowledge of mixed use lettings to work out the best way to enter the mixed use world as a landlord.
  • Getting the right tenant dynamic. While lots of mixed use tenants co-habit peacefully, having a business premise and a residence so close together can occasionally lead to conflicts. If you’re a family looking for a home, a flat above a late-night takeaway or lively café/bar probably isn’t the best option. And if you run an accountancy or legal business, choosing a commercial unit underneath a student flat could lead to disruption and negatively impact your business.

Mixed use commercial properties can be a great investment or a fantastic place to base your business. Before choosing one as a tenant, make sure you’ve done your research and are sure it’s the right place for your budding operations. And as an investor, you’ll need to make sure you’re up to the challenge to get the most out of your two distinct units.

Want to know more about renting or investing in commercial property? Check out our other tenant and investor guides here.