The inherent connection between human life and the built environment necessitates a comprehensive understanding of the ongoing functionality of buildings beyond their initial design. This research aims to develop a conceptual model that captures the intricate requirements and complexities of the human-environment relationship. Employing a qualitative approach grounded in critical realism, the study utilizes the grounded theory. Through an examination of ten historic houses from the Pahlavi period in Tehran, the research draws upon interviews with 52 respondents, supplemented by data from reliable sources and field observations. MAXQDA20 software facilitated the coding process and data analysis. The outcomes reveal three main categories, namely "audience needs/expectations," "lived experience", and "built environment," along with their interconnections. The conceptual model proposes that achieving functionality entails a delicate balance between user needs/expectations and their representation within the built environment. Psychological, physiological, and special expectations are harmonized through proportional arrangements, ensuring the functionality of the space. The built environment serves as a platform, leveraging its physical and non-physical attributes to provide, restrict, strengthen, or weaken the conditions necessary for balance. This research contributes to the understanding of functionality in adaptive reuse, providing valuable insights for architectural practice and decision-making processes.