Considerations for Mixed-Use Projects

Recent court cases have brought the structure of mixed-use projects to the forefront for DRE management. Historically there have been cases where, if the commercial property owner is a significant or influential entity, the commercial property is afforded the means to control the HOA.

It is not uncommon for a commercial property to be burdened with a higher ratio of financial responsibility to the HOA, since such entities would typically have more traffic, more wear and tear on the amenities, and quite frankly, more at risk financially. The DRE has accepted a structure where the commercial owner or owners can control the HOA vote.

As a result of the recent court cases, the DRE has taken the stance that the commercial entity cannot control the HOA over the residential lot/unit owners. The feeling is that, if the commercial entity is allowed to control the residential owners, then the DRE will have fallen short of meeting their obligation to protect the residential consumers.

In 2016 and beyond, certain controls will be in place to protect these consumers, including, but not limited to, the following structural components:
1. All owners must be members of the HOA
2. Voting allocations and ratios must be justified
3. Additional power in the HOA should equate to additional financial burden in assessment allocations
4. Reciprocal Use or Maintenance Agreements may or may not be accepted in these cases. To be acceptable to DRE today, the Agreement must create a voting structure within the HOA, giving the (residential) HOA recourse to the commercial owner if the commercial entity is not otherwise a Member.

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