A mixed-use property combines residential and commercial units, such as a high-street shop with a flat above. These properties can offer attractive opportunities for investors, developers and business owners, but they also require careful consideration due to the mix of leases, tenancies and planning constraints. In this guide, we explore the key benefits and considerations when buying mixed-use property.
Why invest in mixed-use property?
Mixed-use property can be particularly attractive to investors, developers and business owners for several reasons.
Upfront and ongoing returns
Mixed-use properties can generate value in different ways, including the potential for both upfront and ongoing returns. For example, an investor could sell the residential units on long leases for a capital sum, whilst retaining the commercial element to generate ongoing rental income.
Favourable Stamp Duty Land Tax treatment
One of the key attractions of mixed-use property is the way Stamp Duty Land Tax is calculated.
Mixed-use properties are subject to non-residential rates of Stamp Duty Land Tax, which can be lower than the rates applied to purely residential property. The higher rates that can apply when purchasing an additional residential property also do not apply to mixed-use property.
Security and control for business owners
Some business owners choose to buy a premise that combines commercial and residential space for their own use, such as a post office with a flat above or a pub with living accommodation. Owning the property can provide greater control over the premises, whilst the residential element can either be used by the owner or to generate additional income.
Considerations when buying a mixed-use property
Whilst the benefits of buying a mixed-use property can make it an attractive investment opportunity, you should always conduct thorough due diligence to ensure the purchase aligns with your objectives. Existing leases, tenancies and the planning position can have a significant impact on the property’s value, the income it generates and how you can use it in future.
Commercial leases
If the property already has a commercial tenant in place, you will generally buy it subject to, and with the benefit of, the existing lease. This means you take over from the previous landlord and the terms remain unchanged.
If the commercial lease is well structured, this can be a real benefit, providing an established source of rental income. Equally, if the terms are unfavourable to the landlord or there are concerns about the tenant, buyers should proceed with greater caution and ensure this is reflected in the valuation.
Key considerations include the remaining lease term, current rent, rent review provisions and any break clauses. A longer lease with no break clauses can provide greater certainty over future income than a shorter lease that the tenant can bring to an end early.
The strength of the tenant is also important. A large, established business that can reliably meet its rental obligations will generally provide greater security than a smaller independent business that may be more exposed to changes in economic conditions.
You should also establish whether the tenant has security of tenure and may therefore be entitled to a new lease when the existing term ends. If the lease is approaching renewal, consider whether the tenant is likely to stay and, if not, how easy it would be to find a replacement and on what terms.
Long residential leases
If long leases have already been granted over the residential units, the buyer will not benefit from the upfront capital return that could otherwise come from selling those units. As a result, more of the investment value may sit within the commercial element and the income it generates.
Long residential leases can also add complexity to the transaction. In certain circumstances, the current owner may have to give qualifying tenants the opportunity to buy the freehold first, known as the right of first refusal. Generally, this applies when:
- there are two or more flats held by qualifying tenants;
- more than half of the flats in the property are held by qualifying tenants; and
- the commercial space takes up no more than half of the property’s internal floor area.
The right of first refusal can complicate and delay a transaction, so it is worth considering when assessing a potential purchase.
Short-term residential tenancies
Short-term residential tenancies present different considerations. Unlike long leases, they can continue to provide an ongoing source of rental income and do not create the same right of first refusal issues.
However, buyers should still carefully review the terms of each tenancy and the condition of the residential units. If vacant possession may be required in future, whether for redevelopment, sale or another use, it is also important to consider how easy it will be to bring the tenancy to an end. Recent changes to residential tenancy law, including the Renters’ Rights Act 2025, have placed greater restrictions on when and how landlords can regain possession.
Mixed-use properties can also contain a combination of residential units held on long leases and others let on short-term tenancies, making it particularly important to understand the arrangements affecting each individual unit.
Service charges and landlord obligations
If the landlord is responsible for providing services to the property, buyers should check whether the costs are recovered through a service charge and whether the current landlord has met their obligations.
It is also important to establish whether tenants have paid their contributions consistently and if any disputes have arisen.
If part of the property is vacant, the landlord may need to absorb the proportion of service costs that would otherwise have been attributable to that unit. For example, if four units contribute towards maintaining a shared area and one becomes vacant, the landlord may have to cover the missing contribution until that unit is occupied again.
Prospects of obtaining vacant possession and planning permission
If your plans include regaining possession of any element of the property, residential or commercial, you need to assess any potential obstacles. This includes reviewing relevant legislation, such as the Renters’ Rights Act 2025, and the terms of both commercial and residential leases.
For example, if a commercial tenant has security of tenure, they may have the right to continue occupying the premises and seek a new lease when the existing term ends, which could affect your ability to make use of the commercial unit.
If you plan to develop the property or change how any part of it is used, you should also review the planning position to ensure your proposals are permitted or establish whether further consent will be required.
How to value mixed-use property
A mixed-use property should be valued by a surveyor with relevant experience, but several legal and commercial factors can influence how attractive the property is and, ultimately, its value.
The residential and commercial elements will each contribute differently. The residential element may have a capital value, whilst the commercial element is often closely linked to the income it generates.
Where the commercial premises are already let, factors such as the remaining lease term, break clauses, rent review provisions and the strength of the tenant can all affect the value of the investment.
The position of the residential units also matters. If they have already been sold on long leases, the buyer will not benefit from the capital return that could otherwise come from selling those units, placing greater importance on the value and income generated by the commercial element.
Can you live in a mixed-use property?
Yes, you can live in a mixed-use property. Some mixed-use properties are particularly well suited to business owners who want to use both the commercial and residential elements themselves, such as a pub, cafe or high-street shop with living accommodation.
This type of arrangement can provide business owners with greater security and control than leasing business premises.
At Scott Bailey, we have extensive expertise spanning both residential and commercial property, meaning we are ideally placed to advise on the sale or purchase of mixed-use properties. Whether you are an investor, developer or business owner, our Hampshire-based team can help you understand the legal issues involved and ensure the transaction aligns with your objectives. To speak to our property team, please get in touch.
