Commercial property owners who hold residential units as part of mixed-use portfolios are facing mounting regulatory and financial pressures, according to industry analysis highlighting the challenges of managing ‘above the shop’ properties.
Many retailers and commercial landlords have acquired residential property portfolios by default through mixed-use lease arrangements or freehold purchases, creating management challenges for organisations primarily focused on commercial operations.
Regulatory complexity
The management burden extends across tenancy administration, rent collection, repairs, safety checks, deposit management, inspections, and licensing requirements. According to the RICS’s Commercial property management in England and Wales guidance note, there are “considerable differences” between managing commercial and residential occupiers in mixed-use developments, particularly regarding the greater statutory protection afforded to residential tenants.
Since 1st May, the Renters’ Rights Act has introduced changes to private residential tenancies, including moving assured tenancies onto a periodic basis and changing landlord processes. Additional requirements include deposit protection, gas and electrical safety, energy standards, Right to Rent checks, and HMO and selective licensing.
For dispersed portfolios, compliance requirements can vary by local authority, with similar properties in different council areas facing different licensing obligations.
Financial implications
Government data shows that companies account for 15% of private tenancies in England despite making up only 6% of landlords, with just over half of company landlords owning five or more properties.
Industry sources indicate that incidental residential holdings can suffer from unreviewed rents, avoidable voids, reactive maintenance, and management costs that are not considered at portfolio level. The issue extends beyond direct property costs, with property directors, facilities teams, or legal departments often required to intervene in repairs, complaints, or arrears matters.
Risk exposure can also be disproportionate to asset value. Poorly handled repairs can escalate to tenant complaints or regulatory issues, whilst problems in residential units can affect commercial tenants below through water damage, fire-safety concerns, or structural defects.
Portfolio approach
Adam Hills, Client Services Director at LRG Living Markets, suggests commercial property directors should assess whether they have comprehensive knowledge of their residential holdings and performance metrics. “The first question for any commercial property director is ‘do we know exactly what residential property we own and how it is performing?’” he said.
Centralising information on rent, occupancy, arrears, repairs, compliance deadlines, and capital requirements can provide a portfolio-wide view rather than property-by-property management. This approach can identify under-rented properties, refurbishment opportunities, or assets suitable for disposal.
The analysis suggests that retention or disposal decisions should follow assessment of income, cost, condition, risk, and strategic value rather than passive ownership. Some properties acquired over many years may have different tenancy agreements, rent histories, and compliance records, with documentation dispersed across regional offices, commercial agents, solicitors, or facilities teams.
For commercial landlords with residential holdings, the regulatory environment and compliance requirements now demand specialist management approaches, with the alternative being potential cost burdens and risk exposure across wider property estates.
