Can You Sell a Flat Above a Shop or Commercial Premises?

Flats above shops are everywhere in Britain’s high streets and they suit a lot of people very well. They’re usually cheaper than a comparable flat in a residential block, they tend to be central, and they often have more character than a new-build.

Selling one is a different experience from buying one, though, because the thing that made it affordable in the first place, the commercial unit downstairs, is the thing most mortgage lenders worry about. You can sell a flat above a shop, and plenty of them change hands every year, but you’ll need to understand what puts buyers and lenders off, what you can do about it, and which buyers won’t be put off at all. That’s what we’ll cover here.

Why Lenders Are Cautious About Flats Above Commercial Premises

Mortgage lenders assess the flat as security for the loan, and a commercial unit below introduces risks they can’t control. Their concerns generally fall into a few categories.

• What the shop is. A takeaway, restaurant, pub, bar or launderette brings cooking smells, late-night noise, extraction systems and a higher fire risk. Lenders treat these as high risk and many won’t lend at all. An office, estate agent, hairdresser or clothes shop is far less of a problem, and some lenders will treat those almost as they would a residential block.
• How the flat is accessed. Lenders strongly prefer a separate street entrance. A flat reached through the shop, or through a shared hallway that the commercial tenant uses, narrows the pool of lenders considerably.
• What percentage of the building is commercial. Some lenders cap the commercial proportion of a mixed-use building, often at around 25% to 40% by floor area or value.
• Who owns the freehold. If the shop owner is also your freeholder, the buyer’s lender will want to see a well-drafted lease with clear obligations on repairs, insurance and service charges, and a freeholder who’s likely to honour them.
• Resale prospects. Lenders think ahead to what happens if they have to repossess and sell. A flat with a narrow buyer pool is harder to shift, so they price that in or decline.

None of this means your flat is unmortgageable. It means the buyer’s choice of lender is limited, and a buyer who applies to the wrong one will be refused, which is where sales stall.

What Buyers Will Ask About

A well-informed buyer, or their solicitor, will want answers on the following before they commit. Having these ready before you go to market saves weeks.

The Lease

What’s the remaining term, what’s the ground rent, and does the lease clearly set out who’s responsible for the roof, the structure and the shared parts? Leases on flats above shops are sometimes short or badly drafted, particularly where the building was split informally years ago.

The Commercial Tenant

What’s the shop’s current use, what hours does it operate, and does its lease restrict changes of use? A buyer will want to know they aren’t going to find a kebab shop opening beneath them next year.

Fire Safety

Mixed-use buildings need adequate fire separation between the commercial and residential parts, and a fire risk assessment for the common areas. If the shop uses commercial cooking equipment, extraction routes and fire compartmentation become important.

Insurance And Service Charges

Who insures the building, how the premium is split, and whether the commercial use has pushed the premium up or introduced exclusions. Buyers will also want three years of service charge accounts if there’s a formal arrangement.

Selling On The Open Market

If the shop below is low risk and your flat has its own entrance, the open market can work reasonably well. Instruct an agent who’s sold flats above commercial units before, because they’ll know which lenders to point buyers towards, and price realistically against other mixed-use flats in the area, not purely residential ones. Expect the sale to take longer than average and to involve more enquiries.

If the shop is a takeaway or a pub, or the access is shared, the open market becomes much harder. You’ll receive interest, buyers will apply for mortgages, and a proportion will be declined after the valuation. Each refusal costs you a month or two.

Selling To A Cash Buyer

Cash buyers assess the flat on its own merits, including the commercial unit below, and make an offer based on what they think it’s worth and how easily they can sell or let it. There’s no lender to satisfy, so the shop’s use and the access arrangement don’t cause a refusal; they simply feed into the price.

If you’d like to talk to flat buying specialists who purchase above shops, restaurants and pubs regularly, we’ll ask for the lease and the details of the commercial unit, carry out a survey, and give you a written offer with a completion date you can plan around. We’re experienced with the fire safety, insurance and access questions these flats raise, and we’ll work through them with your solicitor without the sale grinding to a halt.

Steps That Improve Your Position

Whichever route you take, a few things make the flat easier to sell and support a better price.

• Get a copy of the commercial lease, or at least confirm the permitted use and hours, so buyers know what to expect
• Check the remaining lease term on the flat and consider extending it if it’s below 80 years
• Obtain a current fire risk assessment for the common areas and evidence of fire separation
• Confirm the buildings insurance covers the whole building and note any commercial exclusions
• Photograph and describe the separate entrance if you have one, since it’s a key selling point

FAQs

Is it hard to sell a flat above a shop?

It’s harder than selling a flat in a residential block, mainly because fewer lenders will provide a mortgage. Flats above low-risk units with separate entrances sell reasonably well. Flats above takeaways or pubs are much more difficult on the open market.

Can you get a mortgage on a flat above a takeaway?

Some specialist lenders will consider it, usually with a larger deposit and a higher rate. Many mainstream lenders won’t. This limits your buyer pool and increases the chance of a sale collapsing after valuation.

Does a flat above a shop lose value?

Flats above commercial premises typically sell at a discount to similar residential flats nearby. The size of the discount depends on the type of shop, the access arrangement and the lease terms.

What if the shop owner is my freeholder?

That’s common and workable, provided the lease is clear and the freeholder meets their obligations. Buyers will want to see that insurance, repairs and service charges are properly handled.

Will a cash buyer purchase a flat above a pub?

Yes. The use of the commercial unit affects the offer, but it doesn’t prevent a cash purchase, because there’s no lender involved to refuse it.

Do I need a fire risk assessment to sell?

If the building has shared common parts, the responsible person must have one in place. Buyers’ solicitors increasingly ask for it, so having a current assessment avoids delay.