J. Patrick Sutton Cases & Issues Blog

HOA Restrictions Against Home-Based Businesses and Commercial Activities Are Outmoded and Unfair

HOA's often forbid "commercial" activities or "non-residential" activities. The new reality of the internet-connected world is that home-based business are important to the new economy, can be compatible with the residential character of a neighborhood, are usually lower-impact on the environment, and offer new freedoms for individuals. HOA's need to re-think their approach to this issue and stop bludgeoning homeowners with lawsuits that threaten their livelihoods.
Many residential subdivisions have restrictions forbidding commercial activities in homes. This is usually expressed as a "residential use only" requirement and is found in the "Declaration," the main governing document for the HOA that contains the covenants, conditions, and restrictions (CCR's). It's hard to amend this document because of super-majority vote requirements, and many lawyers who represent HOA's advise their clients not to allow any open, visible, known businesses to operate from homes. The idea is that if the HOA isn't aggressive in clamping down on home-based businesses, home-brothel operators (for example) will assert that the HOA has "waived" the right to object for all time.

Restrictions on the conversion of garages, the parking of commercial vehicles, and traffic volume often work hand-in-glove with restrictions on conducting business activities, creating a picket fence of regulations surrounding home-based businesses.

I don't necessarily agree with the approach of forbidding all kinds of commercial activity, since HOA rules can usually be given the task of defining what constitutes residential v. commercial use. Thus, while the declaration if read literally seems to forbid Tupperware parties, I doubt that most HOA's have a problem with such activity. Conversely, getting back to my favorite home-based business concept from HOA cases I'm familiar with, that of the brothel, I'm pretty sure most HOA's do take issue with prostitution in the neighborhood. Nevertheless, both HOA's and Tupperware parties can occur in the privacy of homes and between consenting food-freshness-conscious adults. Rule-making by an HOA Board or HOA membership can set whatever limits the HOA generally wants and clarify the boundaries.

Generally, prohibitions on commercial activity pre-date the connected, web-tied world, and I believe that HOA's need to respond to the new ways in which people carry on their trades. It's now cinchy to run all sorts of businesses from homes that formerly required separate commercial space. Construction subcontractors, lawyers, consultants, musicians, PR, software development, and all sorts of businesses can be run day-to-day from virtual offices with no external manifestations visible to neighbors. Such "invisible" business probably do violate declarations that flat-out prohibit commercial activity in homes, in my view, but I also think it's absurd for HOA's to ignore the new realities of the world and forbid such activity. I suspect that hundreds of thousands of people already stand in violation of HOA restrictions by running businesses from their homes.

Am I suggesting a free-for-all (which is what other lawyers accuse me of advocating, by the way). No. I'm suggesting that HOA's address the issue specifically through rule-making or declaration amendments. I'm also suggesting that HOA's consider broadening the idea of what constitutes "residential use" in a world that is not only more data-centric, but also a world that favors energy conservation and reduced commuting. It seems to me a good idea for some amount of a community's goods and services to originate within the community.

Some examples.

A residential community doesn't want a big auto-repair business run from a converted garage. But what about a retiree who has developed expertise repairing antique autos and who fixes one or two each month entirely inside of his garage?

Furniture factories are a no-go, but what about the amateur woodworker who supplements her police officer income by building two rocking chairs per month in her garage? For that matter, what if she goes full-time with the rockers in her garage and ships twenty per month via UPS to rocker aficionados all over the country? And what if this arrangement permits her to be president of the local PTA since running an internet-based business from her home gives her a totally flexible schedule? If the business is otherwise invisible from the street, doesn't generate noise, and doesn't involve traffic and parking issues, who's worse off from any of this? Do the neighbors really care that she can no longer park her SUV in the garage because the lathe takes up too much room? If the neighbors do care, would it matter if she simply collected lathes for a hobby and still couldn't park a car in her garage?

As the above examples show, it's not simply a service v. goods issues, as some lawyers I deal with suggest. Someone who repairs antique dolls is involved in a mixed service and goods enterprise, but it's clearly a business and, viewed under traditional rules, shouldn't be done in an HOA home. I doubt if many HOA residents want to hound him out of business, though.

A subset of HOA members are sticklers for rules no matter what the consequences. These personalities give rules and laws a talismanic effect, as if the fact of something having been put in writing gives it special power and significance. Such persons sometimes gravitate to HOA Boards when spurred to action by the gal next door who, for example, provides daycare for several neighbor children.

In the case of every such home-based business, there are potential issues of concern for an HOA that wants to keep the peace and enforce the rules for everyone's benefit. It may well be that the neighbor gal with the three daycare kids does a poor job of keeping the noise down. As much as the HOA may bless the idea of leaving the woman alone to care for kids, she may be encroaching on her neighbor's rights. Such issues have to be resolved.

All I'm saying is, these cases shouldn't become do-or-die things. I've handled do-or-die HOA disputes where Boards have tried to deny substantial rights to homeowners, and these are desperate, expensive, emotionally exhausting cases for everyone involved.

It seems to me that home-business issues should be turned into opportunities for HOA discussion and debate and that all the issues newly relevant to this issue need to be aired. In large HOA communities, it seems to me absurd that blanket prohibitions on commercial activity in homes even exist now. Such prohibitions cannot be completely and adequately enforced short of an HOA police state. They need to be extensively fleshed out in rules. In small HOA communities, I believe that HOA's should push declaration amendments that spell out clearly that commercial activity is allowed subject to various restrictions. In a future blog entry, I will post suggested rules along these lines.
J. Patrick Sutton Cases & Issues Blog