Operating a Business Out of an HOA Unit: When It Turns Into a Problem

March 2014
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You already know it's wise to implement Smart Rules for Home-Based Businesses. But even then, you'll run into gray areas because some businesses are more quiet and less intrusive than others.

What's a board to do when faced with an owner who occasionally has clients come for a meeting versus an owner who operates a public relations firm with three employees from the house?

Here we provide insight on whether there's a tipping point that turns a home-based business into an HOA headache.

Any Business Tips the Scale

The first question is whether there's a moment in time a home-based business becomes a problem for a board—or are all home-based businesses problematic? Bill Worrall leans toward the latter opinion.

"The general principle is that anything that negatively impacts the quiet enjoyment of somebody's residence is a problem," says the vice president of Hollywood, Fla.-based FirstService Residential, which manages 1,300 condominium and homeowner associations totaling 310,000 residential units. "But that becomes kind of judgmental. Could I quote how many cars come into the community each day as a result of the business or the wear and tear each business inflicts on the community?

"I probably wouldn't go there," he says. "I'd just go to governing documents and use that. Say there's an owner who's a freelance writer. She writes out of a home office and has no visitors as a result of her business. The rules may be unfortunate for that owner. But if they say no businesses should be operated within the community, unit owners should be put on notice they shouldn't be operating a business in the community.

"That may be the best way for the board to protect itself," concludes Worrall. "You don't want the board to get into a position where it has to make judgment calls on how many people are coming and this type of business is allowed, while that's not. I'd just be conservative and protect the board."

Among the home-based businesses Worrall has seen: An owner operating a hair salon. "The apartment was set up with wash bowls and barber's chairs, so that became an issue because there was lots of traffic," he explains. "But it goes back to the initial point: Is the business creating a nuisance in the community—which every set of governing documents says—or negatively affecting others' quiet enjoyment of their home? If that happens, the owner needs to be put on notice he's violating the CC&Rs. Then the board has to research the rest of the community to ensure the CC&Rs are being enforcing evenly.

"That said, if a home-based business doesn't become a problem for the community, it doesn't get reported," says Worrall. "That's real life."

The Other View: When the Problem Arises

Nathaniel Abbate Jr., however, sees nuances. "I've had situations where one owner is asked to stop running a business and says, 'Then this other owner has to, too!'" says the partner at Makower Abbate & Associates PLLC in Farmington Hills, Mich., who represents associations.

"Home-based businesses aren't the easiest of cases," explains Abbate. "We had one that went to litigation and we ended up settling it to everybody's satisfaction. It involved a real estate agent working out of his house, which really wasn't that bad, except that he had about four employees. That created some congestion on the streets. They'd show up and work in his basement all day. And then one of the elderly neighbors allowed him to park some of his overflow cars in her driveway.

"But it was something the association felt was inappropriate," says Abbate. "The owner's justification was that another owner had been running a day care for years in the association. We had to investigate and make sure we knew the facts. Turns out that owner actually was babysitting her daughter's kid and had been for years—and you can't mess with family."

Abbate also recently handled owners who were selling used cars out of their home. "I just got a consent judgment," he says. "The owners were selling six to eight dealer-plated cars out of their home, and they were denying it. Then we hit them with six pictures from Craigslist ads that they'd taken on their own driveway, which made it pretty obvious. It's a reasonableness standard. The more it affects other people, the more strict scrutiny you give it.

"My advice for HOAs is to draw the line on home-based businesses when it changes the nature and character of the community," advises Abbate. "It's difficult to say a teacher can't grade papers at his desk in his home office. And while an owner working out her home might get more package deliveries than others, how do you say no on that basis and not have a problem with the shopaholic who stays up all night ordering stuff that's also delivered to his home? In the situation with the real estate agent, there was quite a bit of street traffic and street parking. To have looked past it might have risked having the 10-minute oil change guy or the shade-tree mechanic claim his business should be fine, too—a 'You allow that, so you have to allow this' argument."

Here's how the matter was settled. "We agreed the real estate agent could still work out of his house," says Abbate. "The idea is what you do with your computer and telephone is your own business. But you can't have employees there and the traffic problems that come with that. Realistically, the association isn't going to be able to watch and say, 'This person shows up and parks in the garage.' But when you have the disruption of traffic and there'd be as many as six cars with a couple of clients and employees there at the same time, that's where you draw the line. That does change the nature and character of the community."

Are Your Governing Docs Specific Enough?

Some associations avoid making those fine distinctions by including very specific provisions in their governing documents.

"There was an association in a very expensive section of Boston called the Back Bay where an owner was running a bed and breakfast out of the unit, and we stopped that," recalls Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops. "In another case, there was a lot of evidence someone was running a brothel out of her unit, and that got stopped. There's no limit to the uses owners can put their unit to."

That's why handling this issue depends on what your association's bylaws say, and in Galvin's world, they're usually very detailed. "In Massachusetts, they almost invariably say what can be done in a unit," says Galvin. "They typically say the unit can be used only as a residence and that a portion can be used as a customary home office in accordance with whatever the local zoning law says—and there's usually a provision in each town about that. Sometimes they also say there can be no employees other than the residents of the units or that no clients or customers can use the unit for business purposes. Or they might say clients or customers have to be substantially infrequent, and there can be no signs for the business.

"Therefore, the board really doesn't have any authority to act unless there's something in the bylaws addressing the issue," says Galvin. "If it says you can't have a business in your unit, then you can't have a business in your unit—period. If it says there can be a business, but there can be no employees other than the residents and the visitation has to be substantially infrequent, I suppose the only issue the board would get into is what 'infrequent' means. Because most bylaws are so specific, there really aren't that many problems. And when there is a problem, it's pretty clear what the reaction has to be.

"And Massachusetts courts will enforce those provisions," adds Galvin. "There's a case in Massachusetts where the condo bylaws said there can be no business in the unit, and someone was running a child care business. There was a lawsuit and the court told the owner, 'You just can't do that.'

"The answer is to put provisions in your bylaws addressing potential problems," advises Galvin. "If you don't have it addressed in there and your board members are acting on an ad hoc basis, that's a very dangerous thing to do legally because there are no standards."

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