Explore dual-purpose buildings with Fraser Bond—residential and commercial properties perfect for investors.
Mixed use is defined by a percentage, and there is more than one of them. The right of first refusal and the right to manage both fall away above 50% non-residential floor area. Collective enfranchisement still falls away above 25% — the change to 50% is in the 2024 Act and has never been commenced. A building at 30% commercial is exposed to two of those and protected from the third. Almost nobody measures before they buy.
Four separate statutory rights turn on what proportion of the internal floor area is non-residential, and the thresholds are not the same. A building at 27% commercial sits on the wrong side of one of them and the right side of another. We get it measured, because an estimate is not a defence.
Where the residential part predominates and qualifying tenants hold more than half the flats, a sale requires a section 5 notice under the Landlord and Tenant Act 1987. Selling without one is a criminal offence, and the tenants can pursue the purchaser for the building at the price paid.
A genuine mixed-use purchase is taxed at non-residential rates topping out at 5%, with none of the residential surcharges. The saving is large enough that HMRC scrutinises it. And the option to tax cannot apply to the residential element, so the VAT treatment has to be apportioned rather than assumed.
Our fee is paid by the vendor or the landlord. No acquisition fee and no retainer — and no reason for us to be quiet about a building whose split puts your plans on the wrong side of a threshold.
Hold for income, break up and sell the flats off, convert the commercial, or redevelop. Each of those runs into a different threshold, and the building that suits one can be the wrong building for another.
Internal floor area split, tenure of every part, right of first refusal position, ground rents and service charge apportionment, building safety status, and the VAT and SDLT treatment.
A mixed-use building is a commercial investment and a residential one sharing a roof. They have different tenancy regimes, different valuation bases, different lenders and different exit routes. Blending them into one yield hides more than it shows.
Almost every statutory right that affects a mixed-use building turns on the proportion of internal floor area that is non-residential. The numbers are not aligned, and the gaps between them are where the value sits.
Where the residential part predominates, a disposal of the freehold requires a section 5 notice offering the building to the qualifying tenants first. It bites where there are two or more flats held by qualifying tenants, those tenants hold more than half the flats, and the non-residential part is not more than half the internal floor area. The tenants get not less than two months to accept, during which contracts cannot be exchanged.
Failing to serve is a criminal offence with an unlimited fine — but the consequence that matters to a buyer is different. The qualifying tenants can pursue the purchaser and require the building to be transferred to them on the same terms and at the same price. You can complete, spend on the asset, and be compelled to hand it over at cost. On a mixed-use building where the split is anywhere near 50%, establishing this is the first piece of work, not a conveyancing formality.
A genuine mixed-use purchase is charged at the non-residential rates, which top out at 5% above £250,000, and neither the additional dwelling surcharge nor the non-resident surcharge applies. There is no apportionment: the whole consideration takes the lower treatment. On a large purchase the difference runs to hundreds of thousands of pounds.
That size of saving attracts attention. HMRC processes returns first and enquires later, with a nine-month enquiry window from filing and longer where facts were not disclosed. Tribunal decisions have gone heavily against taxpayers who relied on thin non-residential elements — pylons, ventilation shafts, garages used for storage, home offices, paddocks and informal grazing have all failed. A genuine commercial unit with its own access, its own lease and its own rates assessment is a different proposition entirely.
An option to tax cannot apply to residential accommodation. So on a mixed-use building the commercial element may be opted and standard rated while the residential element remains exempt, and the consideration has to be apportioned on a fair and reasonable basis. That affects the price you pay, the VAT you can recover, and — because SDLT is charged on the VAT-inclusive figure — the stamp duty as well.
It also affects works. Construction and conversion in the residential part may attract reduced or zero rating in defined circumstances, while equivalent work to the commercial part is standard rated. On a refurbishment spanning both, getting the apportionment right at the outset is materially cheaper than reconstructing it afterwards.
The commercial parts are governed by the Landlord and Tenant Act 1954 — security of tenure unless contracted out, with the Law Commission’s second consultation having closed on 16 September 2026 and nothing yet changed. The residential parts are governed by the Renters’ Rights Act where they are let, or by long leases where they have been sold off.
Since 1 May 2026 the residential side has no fixed terms, no section 21, a ban on rental bidding, rent in advance capped at one month, annual rent rises on two months’ notice, and rent repayment orders of up to 24 months with civil penalties to £40,000. Underwriting a mixed-use building on a blended yield hides the fact that half the income is contractually certain and half is not.
It depends which question you are asking, which is the point most people miss. For the right of first refusal and for the right to manage, the non-residential part must exceed 50% of internal floor area before those rights fall away. For collective enfranchisement the limit is still 25% — the increase to 50% is in the Leasehold and Freehold Reform Act 2024 and has never been commenced. For SDLT there is no percentage at all: any genuine non-residential element takes the whole purchase into the non-residential rates. Measure the floor areas properly, because three different thresholds turn on the answer.
Non-residential rates, topping out at 5% above £250,000, with no apportionment and none of the residential surcharges — neither the additional dwelling surcharge nor the non-resident surcharge applies. The saving on a large purchase is substantial, which is exactly why HMRC scrutinises the classification. It processes returns and enquires later, with a nine-month window from filing. Tribunal decisions have gone heavily against claims resting on thin non-residential elements. A genuine commercial unit with its own access, lease and rates assessment is a different matter from a garage or a paddock.
They can require you to offer it to them first. Where two or more flats are held by qualifying tenants, those tenants hold more than half the flats, and the non-residential part is not more than half the internal floor area, a section 5 notice under the Landlord and Tenant Act 1987 is compulsory before a disposal. Failing to serve it is a criminal offence, and the qualifying tenants can pursue the purchaser and require the building to be transferred to them at the price paid. Separately, collective enfranchisement — where they compel a sale — is only available where the non-residential part does not exceed 25%.
No. An option to tax cannot apply to residential accommodation, so on a mixed-use building the commercial element may be opted and standard rated while the residential element stays exempt, with the consideration apportioned on a fair and reasonable basis. That affects the purchase price, your VAT recovery, and the SDLT, since stamp duty is charged on the VAT-inclusive figure. It also affects refurbishment, where work to the residential part may attract reduced or zero rating that the same work to the commercial part does not.
As two assets sharing a roof, not one blended yield. The commercial income sits under the 1954 Act with contractual terms you can model. The residential income, since 1 May 2026, has no fixed terms at all — periodic tenancies, no section 21, bidding banned, one month’s rent in advance, annual increases challengeable at tribunal. Those are different risk profiles, different valuation bases, different lenders and different exit routes. Price them separately, then look at what the combination does to your options on the thresholds — because that is what decides whether you can break the building up later.
