According to U.S. Small Business Administration statistics, over half of all small businesses begun in the last decade have been home-based—that's more than 24 million in real numbers—with a new home-based business being launched every 11 seconds.
Those numbers should not be lost on condo and HOA board members, some of whom still preside over buildings with express prohibitions against home-based businesses. But should associations move to amend their governing guidelines, often requiring an amendment to the property’s declaration or master deed, to eliminate these provisions? Yes, say experts in both business and legal fields.
Efficiency & Sustained Growth
“There’s been so much outsourcing,” notes Phil Holland, Los Angeles-based business consultant and author of The Entrepreneur’s Guide who attributes the rate of home-based business growth to two main factors: “One, the adverse economic climate, which is propelling people to start home-based businesses, and two; the tools are now available to help them. Firms are learning that in some cases it's much more efficient and less costly to outsource work than it is to have employees in offices, so that has kind of propelled the home-based business thing. And for people who are unemployed and haven’t found work, starting a home-based business may not be a bad alternative.”
Yet unlike their non-condo-dwelling counterparts, many unit owners run up against rules forbidding home-based businesses in their buildings and HOAs. Balancing association administrators' concerns about traffic, noise, and zoning restrictions with residents' need for income and autonomy in their own homes is tough—but it must be addressed, particularly in such tenuous economic times.
Out-of-Date Bans vs. Reality?
Despite dramatic changes in telecommuting technology, many associations, still governed by bylaws drafted decades ago, prohibit home-based business activity of any kind.
And in most cases, it's perfectly legal for them to do so, says Greg Dyer, a partner with Newark-based law firm McCarter & English. "[Home-based businesses] are often prohibited by the local ordinances of the town or municipality, " he says. “And then the condo association's governing documents—the master deed or the declaration of covenants, conditions and restrictions—may have language that reads something like, 'No unit shall be used for any purpose other than as a private residence, and no business trade or profession shall be conducted in any unit.' ”
But, continues Dyer, even in light of municipal and HOA restrictions, the question of enforcement and what those rules really prohibit often remains. "Deed restrictions don't really go after a typical home office kind of situation where the person is on the phone and their computer all day and there are really no other activities going on," he says. "No one is even going to notice that, and it's not going to bother anybody, so it's really not going to be an issue."
Out-of-date master deed prohibitions against home-based businesses may be a heavy-handed way of discouraging nuisance behavior. That, after all, is the real concern for most condo boards—it's the noise, the traffic, the potential security implications for the community at large—not the businesses themselves.
As Holland notes, “Under the typical boilerplate bylaws that condominiums had let’s say 20 to 30 years ago, it would not be unusual at all to have [clauses prohibiting HBBs] because you can visualize people running barbershops or whatever from their houses.”
Yet many small business experts like Holland and others say such prohibitions fail to recognize the modern realities of the way business is done in a new economy. “It’s certainly become a lot more commonplace now for people to work from home whether you’re an entrepreneur starting your own business or an employee whose company is allowing you a more flexible working situation,” says entrepreneur Lorraine Hornsby, who runs a jewelry retail business out of her home. “But I still think you have to work a little bit harder to gain respect for what you do when you have a home-based business."
Andy Abramson lives in a homeowners association in San Diego County, California and runs a marketing communications agency out of his unit. "When I bought my home almost 10 years ago, we posed the question to the HOA board regarding the operation of a home office/HBB to insure there would be no concerns."
Not Every Business Works
Even small-business boosters are quick to point out that some home-based businesses simply can’t—or shouldn’t—be made to work in a co-op or condo setting. One pro recalls an instance where a condo owner was running a limousine service out of his unit. “The limousines—and he had a number of them—would come to the property, and he had drivers on the property. It becomes an issue where you have employees kind of milling about the parking lot on their lunch break, and it doesn’t necessarily fit with the residential nature of the community."
Having non-resident employees entering and having free access to an association's grounds and buildings tends to make neighbors nervous—and rightfully so. Someone who telecommutes from home presents no nuisance at all to neighbors (unless he or she likes to shout into the phone, of course), but if someone is making a living buying and reselling items on eBay, say, and is accepting 20 or 30 FedEx or UPS deliveries per day, that's likely to become a major annoyance for the doorman and the people sharing the hallway.
"A massage therapist, makeup artist or manicurist may not make a lot of noise," says Abramson, "but having eight or 10 people a day coming to the door may be viewed as disturbing to the neighbors."
Abramson is correct. A recent news article from Toronto tells of the problems a private condominium was having because an illegal massage parlor had set up shop inside the building. Residents complained repeatedly to the management, the local police and even the city but to no avail. The police report in the article that it is hard to get a transient business like that removed permanently. They usually move somewhere else, officials said.
Noise is also an issue of perpetual concern in the close quarters of an urban apartment building. Lynn Whiting, vice president of Argo Real Estate in Manhattan, remembers one tenant—a voice coach—who chose to run her business out of her unit. She was in compliance with all zoning requirements, but management asked her to cease the business anyway after receiving noise complaints from other residents. “The tenants had an objection because they could hear the lessons and the piano,” says Whiting. “It’s not that it wasn’t a permitted use, it’s just that it was objectionable to other tenants so the board had to stop it.”
Staying Within the Law
According to Daniel P. Dalton, an attorney and founding member of Dalton Tomich & Pensler, PLC in Bloomfield Hills, Michigan, different municipalities have different restrictions on home businesses already in place that apartment-dwellers must follow, from location to size and of course what type of business it is and what sorts of materials and goods are involved. "Each community has zoning ordinances which designate the types of “uses” that can take place in a particular area of town. Some uses are commercial, some are residential and others are 'mixed use' or 'overlay districts,'" he says.
Some communities' zoning rules forbid home-based business from selling articles produced off-premises, or having outside signs, or a display of goods that are visible from the outside. Depending on the rules, some businesses can’t store materials or products outside of a principal or accessory building or other structure; in certain districts, displaying a nameplate or other sign except as permitted in connection with the practice of a profession is unlawful. Still other rules prohibit making exterior alterations to a residential structure, and most outlaw any kind of activity that causes offensive noise or vibration, smoke, dust, odors, heat, glaring lights, or humidity.
Businesses that are usually a no-go in a condo or HOA setting include (but are certainly not limited to) things like barbershops, beauty parlors, commercial kennels or veterinary practices, spa-type facilities, interior decorators' offices or workshops, apothecaries, and real estate offices.
Another example of something that definitely wouldn’t be acceptable is a daycare business. “A babysitter watching one child is acceptable, but running an actual daycare is absolutely unacceptable for a number of reasons, including fire regulations,” says Whiting. “That would be a business we would have to put an end to.”
So what businesses can be run from a condo unit? Whiting says that therapy and counseling services are a good example, and some buildings do permit residents to conduct sessions in their home, but she adds, “Management and the board have to set some ground rules though, and not allow the lobby to be turned into the tenant’s own personal waiting room for their business. The business can’t be disruptive to other residents.”
Striking a Balance
Striking an acceptable legal balance between individual business and building business may not be as tricky as you think. Nuisance provisions in a building's governing documents can be applied broadly, and generally prohibit residents from engaging in behavior that is annoying or offensive to his or her neighbors. According to legal experts, even if such a provision doesn’t specifically forbid running a business out of one's residential unit, there may be other ways to attack a situation that has become a nuisance.
Such nuisance provisions—a key to protecting management interests—may be called into play in the event of neighbor complaints about an otherwise-acceptable home-based business. And regardless of building restrictions, or lack thereof, some potential home-based startups would fall outside acceptable zoning guidelines for a particular property.
It may be of value to have a look at your HOA's governing documents and determine if your HBB-related language reflects the reality of your residents. If it's antiquated or overly broad, it may be time to change it. "You can clarify what's in your documents," says Dyer. "Because it's a little ambiguous if it reads, 'No business, trade or profession shall be conducted at any unit.' You might clarify it by saying expressly what it does and does not prohibit—your typical home office situation would be permitted, for example, whereas you could expressly prohibit signage, commercial vehicles, or clients and customers coming and going from the unit."
Whenever there is doubt, the experts agree that the next step is to consult city ordinances for clarification. In addition, board members should strive to make residents aware of the additional insurance requirements resulting from any home-based business that may exist on their property. (In an industry where nearly it's estimated that up to 40 percent of condo owners do not have private insurance, it can be said with some certainty that the percentage of properly-insured home-based condo businesses is even smaller.)
In the end, for some co-op and condo dwellers—particularly those who may have lost traditional jobs during the economic downturn—limiting home-based business restrictions might be the one “helping hand” a resident will need on the path to economic recovery. Rather than issuing (and trying to enforce) a blanket prohibition, it may be wiser and more compassionate to consider what's reasonable and how home-based businesses might actually benefit both individual residents and your community at large.
"Depending on the community, I think more people will take advantage of home-based businesses due to the availability of remote connection to an office, virtual offices or simply the lack or desire to get into a car and drive," says Dalton. "I think we will see more of them in the future. There must be a balance, however, on the types of uses involved."
Matthew Worley is a freelance writer. The New Jersey Cooperator’s Hannah Fons and David Chiu contributed to this article.