Key Takeaways

  • Converting a residential property to commercial use involves zoning laws, building code compliance, and possible insurance or mortgage updates.
  • Mixed-use buildings combine both commercial and residential elements and are subject to special regulations and benefits.
  • Zoning changes or “change of use” permits are often required to operate a business from home.
  • Commercial and residential buildings differ significantly in construction standards, costs, and design requirements.
  • There may be additional considerations regarding safety codes, accessibility, and occupancy when converting property usage.
  • Always consult local authorities and professionals before making property use changes.

Can residential property be used as commercial property? This type of building usage is known as mixed-use and is when a commercial property includes both commercial and residential space. If you are considering changing a building's certificate of occupancy from commercial to residential, be aware that this is not easy. Potential buyers will want to keep this in mind when looking for a business location.

What Does a Mixed-Use Property Look Like?

In most cases, square footage will not be evenly distributed—the residential portion will have more square footage than the commercial portion. In Brooklyn, New York, mixed-use properties are very common. For example, many apartment buildings will have a small storefront or retail space on the ground level. This type of mixed-use building can be confusing for people wanting to buy a home in New York City.

Atlantic Avenue, Franklin Avenue, Court Street, and Smith Street in Brooklyn are places where commercial storefronts topped with apartments line the streets. These mixed-use properties are also very common in Manhattan. In the late 19th century, several areas such as Park Slope and Bed Stuy developed large corner apartment buildings with ground-floor retail. Between these mixed-use buildings would be streets lined with townhouses.

Advantages of a Mixed-Use Building

As with all things, renting space to a business has both advantages and disadvantages. Some of the advantages are:

  • A longterm lease (slow turnover)
  • No late-night operation
  • Extra security provided to the residential portion

Disadvantages of a Mixed-Use Building

There are some disadvantages to renting space to a business. These include things like:

  • Harder to evict tenants
  • Financing can be difficult

Is It Illegal to Use a Residential Property for Commercial Purposes?

While mixed-use buildings are common in New York City, many local governments restrict or prohibit businesses in residences. The reason for this is that they prefer a residential neighborhood to be residential rather than commercial or industrial. If you're thinking of starting a home-based business, you will need to find out if there are any legal restrictions in your neighborhood and community that might prohibit using your home for business purposes.

Understanding Zoning and Permitted Use

Before converting a residential property into a commercial or mixed-use space, it's critical to understand local zoning ordinances. Municipal zoning laws classify areas for residential, commercial, industrial, or mixed use. If your property is zoned exclusively for residential purposes, running a commercial business could violate local codes.

To legally operate a business in a residential zone, property owners typically need to:

  • Apply for a special use permit or variance
  • Comply with home occupation rules (e.g., limits on signage, noise, or foot traffic)
  • Avoid exterior modifications that change the property's residential character

Zoning laws vary by jurisdiction, so always consult your local planning or zoning department before making changes.

Things to Consider If You Want to Run a Business From Home

A property's lease will determine what restrictions, if any, the property has. Make sure to thoroughly read your lease agreement before starting a business in your home. Whether there is an absolute prohibition on business use, or you just need to seek your landlord's consent, it is important to abide by the lease's guidelines to avoid any problems.

Even if you own your home, there may be some restrictions. Some mortgage lenders may require that you get permission or restrict the use of the property from being used as a business altogether. It is important that you check the terms of your mortgage agreement before making any major decisions. You don't want to run the risk of your loan being terminated and having to repay it immediately.

Key Differences in Commercial and Residential Construction

Converting or constructing a commercial and residential building involves distinct differences in design, regulation, and cost. Some notable differences include:

  • Building Codes: Commercial buildings must adhere to stricter fire safety, structural integrity, and accessibility codes, including ADA compliance.
  • Materials and Construction Standards: Commercial properties often use steel and reinforced concrete, while residential buildings typically use wood framing and lighter materials.
  • Utilities and Systems: Commercial buildings may require more complex HVAC, electrical, and plumbing systems.
  • Project Management: Commercial construction tends to be faster-paced and often involves multiple contractors, while residential projects are usually more streamlined.

These distinctions can significantly affect your budget and timeline, so ensure your contractor is experienced in mixed-use or commercial conversions.

Changing Your Building and Contents Insurance

An important thing to think about before using a residential property as commercial is changing your building and contents insurance. Your current policy may prohibit business use. This would mean that your policy could be invalidated. Make sure to check the terms of your building and contents insurance policy to avoid this risk and, if necessary, get permission to operate your business.

Will You Need to Use Planning Permission?

Planning permission will need to be obtained if you decide that you need to make alterations to your property. For example, If you construct an extra building, such as a storage shed, you will need to obtain planning permission. Another example of when planning permission will be necessary is if your property becomes more of a business than a residence. It is also a good idea to consider getting planning permission if your business increases traffic or other things that may upset your neighbors.

Decide whether or not your business has changed the main use of your property. Is it still mainly a residence or has it become more of a business? If the answer to this question is "more of a business," then you will need to make a planning application for change of use.

When a Change of Use Permit Is Required

A change of use permit is generally necessary when you plan to convert a residential property into a commercial or mixed-use space. This process ensures that the new usage aligns with zoning codes and building safety standards. Common scenarios that trigger the need for a change of use permit include:

  • Operating a business that draws significant foot or vehicle traffic
  • Making structural changes to accommodate commercial needs (e.g., adding a storefront or signage)
  • Installing commercial-grade systems or features

Even if your home business complies with local rules, you may still need a permit if the commercial activities dominate the use of the property. Failing to obtain the proper approvals could result in fines, legal issues, or forced closure.

Frequently Asked Questions

  1. Can you legally use your home for business purposes?
    Yes, but it depends on local zoning laws and whether your business meets home occupation requirements.
  2. What is a commercial and residential building?
    It’s a mixed-use property combining living spaces with business or retail areas, typically under the same roof.
  3. Do I need permission to convert my home into a commercial space?
    In most cases, yes. You may need zoning approval, a change of use permit, and updated insurance or mortgage terms.
  4. What are the construction differences between residential and commercial properties?
    Commercial buildings must comply with stricter codes, often use more durable materials, and involve larger utility loads and professional project management.
  5. Can I rent out part of my residential property for commercial use?
    Possibly, but you’ll need to ensure zoning compliance and may have to update your insurance and lease agreements accordingly.

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