Is it Time to Revisit Restrictions on Home-Based Businesses in Condominium Associations?

What do Apple Computer, Mary Kay Cosmetics, and the Ford Motor Company all have in common? These corporations all started out as home-based businesses.  With recent technological gains, more individuals are not only working from home but, in fact, more than half of all U.S. businesses are based out of an owner’s home[1].  In addition, with technological advances, many tasks that required an individual to go to their place of employment or an office, can now be done at their residence without interference[2].

However, if you are one of the growing number of individuals who see their future as running a home-based business or telecommuting[3], a few words of caution.  Working from a home office, even if it is part-time, can potentially be a problem if you do it from a condominium. This is particularly an issue when the condominium’s governing documents have not been updated in quite some time.

 

Why the concern if you live in a Condominium Project?

Those who live in a condominium are aware that every condominium project has written provisions governing the use of both the common areas and the units themselves. These provisions are contained in the condominium documents, which include the master deed, condominium bylaws and rules and regulations.  Most condominium projects contain provisions in their governing documents that prohibit businesses from being conducted  or operated from within a unit and/or on the common elements of the condominium.

The intent of these provisions is to ensure that all co-owners, tenants and/or residents conduct themselves in a fashion that causes the least disturbance for everyone else within the community. Restrictions are put into place to limit traffic to and from the condominium, to avoid noise, to limit the use of utilities, etc. The board of directors is legally responsible to ensure that the written provisions contained in the condominium documents are enforced.  Thus, the board of directors cannot turn a blind eye to anyone violating those provisions, even if it wanted to, because the directors feel that certain provisions are outdated.

 

Typical Condominium Provisions Relating to Home-Based Businesses

There are certain typical provisions found in the condominium documents that address home-based businesses[4].  The first typical provision will declare that the condominium unit is to be used solely for residential purposes[5].  The second typical provision will state that no commercial activities are allowed to be conducted in a condominium unit and/or on the common elements of the project. A variant of this provision will be more elaborate and indicate that the condominium unit may not be used for any commercial, manufacturing, industrial or business purposes that create any nuisances or liability exposures such as customer/client/patient traffic, noise, traffic or parking congestion, odors, or vibrations that might detract from the peaceful and residential character of the project.

The third typical provision is one which states that the unit can be used only as a residence but allows a portion of the unit to be used as a customary home office in accordance with the local zoning ordinance in the district within which the condominium project is located.

 

Problems Boards of Directors are facing in addressing Home-Based Businesses

Boards of directors are being asked to enforce home-based business provisions in their condominium documents that were written many years ago when condominium law was in its infancy and there were not many home-based businesses.  Knocking against these typically rigid provisions is the fact that with the increase in home-based businesses, people within condominium communities are rethinking things and coming to the conclusion that the provisions in their condominium documents should be more fluid in order to keep up with the times[6], while still protecting the residential nature of condominium projects.

Thus, condominiums with older restrictive provisions are typically  put in the difficult position of having to make judgment calls on how many people are coming and going from the unit and whether this type of business is allowed.  Condominium associations with newer governing documents can simply rely on the exceptions contained in the local ordinances for the definition of what constitutes permissible activities within their community[7].

In addition to dealing with archaic provisions and the changing times, sometimes determining just what constitutes a home business can be a tricky matter and will often come down to noise and foot traffic and how it impacts others within the community.  For example, if the restrictive provision simply states no commercial activities, what do you do with a co-owner who is a management consultant, who does not see clients and simply uses his/her computer all day?  What about a co-owner who is in telephone sales?   Since people can have differing opinions on these type of determinations, it is easy to see how different board  members over time within the same community can come to different conclusions on whether the activity is commercial or not.  This could lead to potential claims of non-uniform enforcement.

 

How to Address Home-Based Businesses

In most instances, the best approach would be to amend the condominium bylaws to grant the board of directors discretion to allow certain home offices/businesses by taking into account  (1) pedestrian and/or vehicle traffic by customers, users or beneficiaries of the services to be performed in the unit; (2) business that do not disturb other co-owners or residents; (3) businesses which have no additional expenses to the Association for utility charges and/or insurance premium increases; (4) businesses that have no storage of bulk goods for resale; and (5) businesses which do not constitute a violation of any ordinances or regulations of the local municipality.

Another approach communities have taken, rather than using a blanket restriction of all businesses, is to examine the effect of the business activity on the project and limit the various activities associated with the business so that it limits the potential harm or interference with the other co-owners/residents in the project.  Thus, these communities have created provisions that limit the number of ‘visitors’ to a unit in a day and/or limit the number of vehicles that can park in the project, in front of the unit and/or in the driveway of the unit.

Other communities have amended their documents to allow home-based businesses that they cannot see, hear or smell. These communities have taken the approach that these types of home-based businesses have either no impact, or a miniscule impact on the association and its members.

However, amending the condominium documents is not always easy because approval requires the consent and votes of not less than two-thirds of the co-owners and mortgagees[8].

Thus, if amending your documents is not possible or unlikely, the Board may be able to create rules and regulations that supplement and elaborate the existing provisions within the condominium bylaws. With the help of the condominium association’s counsel, the Board can create rules and regulations that can set forth specific home-based business exclusions, such as a barbershop, a styling salon, a beauty parlor, a tearoom, a fortunetelling parlor, or any form of animal care or treatment such as dog trimming.  The rules and regulations can also set parameters to use to help the Board determine whether a use is incidental and secondary to the use of the condominium unit as a residence.  Furthermore, the rules and regulations can put further restrictions such as indicating that the home-based business may not have any signage; cannot have any employees; and may not have mechanical or electrical equipment other than personal computers and other office type equipment.

Finally, the Association’s counsel should check that any changes to the condominium documents conform with local ordinances in place addressing home-based businesses in the zoning district.

 

Conclusion

Studies have shown that more businesses are being run out of homes today and that the number continues to increase. Furthermore, more individuals are telecommuting and with the advances of technology, it is likely that more aspects of one’s job will be done at home.  If an Association’s documents have not been updated in quite some time, Boards are often left with archaic provisions to deal with these new realties. Therefore, Boards may want to take a proactive approach and create new provisions in the condominium documents that not only address today’s business realities but also create provisions that allow flexibility in addressing future business trends as they may arise.

 

William Z. Kolobaric is an attorney with the law firm of Cummings, McClorey, Davis & Acho, P.L.C. where he focuses his practice on community association law, construction law, real estate law, creditor’s rights in bankruptcy and probate and estate planning. He has extensive experience in state and federal courts involving a wide scope of real estate, commercial litigation and creditor’s rights matters. He can be reached at (734) 261-2400 or wkolobaric@cmda-law.com. Please view The Michigan Community Association Law Blog at http://www.micondolaw.com for additional resources on Michigan Community Association Law.

 

[1] U.S. Small Business Administration.

[2] 24 percent of employed people did some or all of their work at home in 2015, United States Department of Labor, Bureau of Labor Statistics.

[3] Telecommuting is defined as working from home and making the use of the internet, email and the telephone.

[4] The provisions found within the condominium documents also have to conform with local zoning ordinances when addressing home-based businesses. Thus, for example, the condominium documents cannot allow a type of home-based business that would not be allowed under the local zoning ordinance.

[5] Older documents will reference ‘single-family’ residential purposes.  Most newer/updated documents have eliminated the ‘single-family’ reference to avoid potential Fair Housing Act discrimination claims.

[6] In 2012, the US Census Bureau released its 2012 Survey of Business Owners and found that 52.2 percent of businesses were operated primarily from someone’s home, 23. 3 percent of employer firms operated out of a home and 60.1 percent of non-employer businesses were home-based. US Census Bureau 2012 Survey of Business Owners.

[7] In many parts of the state and county, zoning laws are being relaxed to allow for businesses that do not disturb the neighborhood. Thus, if a Board is relying on local ordinances for restricting home-based businesses, it may find itself with home-based businesses within the community that exceed the scope of what the community would ordinarily accept.

[8] MCL 559.190 and 559.190a.