Commercial use of residential flats is expensive

Last Updated: Tue, Oct 09, 2012 04:43 hrs

Cooperative housing societies often oppose full-scale commercial use of residential flats, as it happened with Gargi Patil. The 29-year-old dentist wanted to open a clinic in a section of her flat in suburban Mumbai's Andheri to cut cost. But she was told it was illegal.

Commercial activities usually involve movement of people or storage of goods, and financial transactions. Nevertheless, it is not a good idea to start any kind of business in a flat without getting complete clarity on the legal aspects.

Om Ahuja, chief executive officer, Residential Services, at Jones Lang LaSalle India, says utilising 20 per cent of your residential space for commercial use is permissible under law, as long as the business in question falls within certain categories, such as operating banks, nursing homes or dispensaries.

Things to remember before converting part of residential house into office:
  • Procure shop and establishment licence from the local municipal authority
  • Be clear on the purpose of the commercial activity and the area required
  • Commercial charges will be applicable on the property, water and electricity
  • These will depend on the commercial rates applicable in area, property size and the commercial activity conducted

"However, these should not be considered as blanket rulings as rules are state specific," he says.

How much area one can use for commercial purpose depends on the state and the society bylaws.

Sanjay Dutt, executive managing director, South Asia, at Cushman & Wakefield, says property tax for commercial space is almost double of that of a residential area.

The tax for a flat varies from Rs 4 to Rs 5 per sq feet. So, for a 1,000 sq ft house, one has to pay Rs 4,000 to Rs 5,000. In case you convert this into a commercial property, you will have to pay a property tax of up to Rs 10,000.

For instance, a society which charges a monthly outgo of Rs 2,000 on its residential flats, can charge Rs 2,500 to Rs 5,000 extra (for maintenance and usage of building premises) depending on the area, which is being used for the commercial activity. Hence, how much extra one has to pay is decided collectively by the society members.

Experts say, outgoing towards the society depends on the area one stays in. If you use your flat for commercial purpose, your society will levy a higher maintenance charge. Also, one has to pay for tax, insurance, water and electricity.

"Professions such as those practiced by doctors, lawyers and chartered accountants are not considered as commercial activity," says Ahuja of Jones Lang LaSalle India. Besides, activities such as teaching, painting, holding yoga or dance classes, tuitions or conducting cookery classes, are also allowed in a residential area.

The work and skill involved in these professions is predominantly mental and intellectual rather than physical or manual.

However, if your society bylaw doesn't allow commercial activities within the building premises, not much can be done. But, if you have a licence to operate and are still facing resistance from society members, you can approach the cooperative court, says Ameet Hariani, managing partner, Hariani & Co, Advocates & Solicitors.

Advocate and property expert Vinod Sampat says, "In Mumbai, to use residential space for commercial purposes, one needs to acquire a license from the Brihanmumbai Municipal Corporation. Procuring this usually takes a long time and is a tedious process."

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