As the lingering effects of the “Great Recession” continue to influence the lives of countless average Americans, more and more displaced workers are turning to home-based businesses (HBBs) in an attempt to reverse sagging fortunes.
And as U.S. Small Business Admin-istration statistics indicate, over half of all small businesses begun in the last decade have been home-based – more than 24 million in real numbers – with a new home-based business being launched every 11 seconds.
They’re facts that should not be lost on many condo board members, some of which still preside over properties with express prohibitions against such activities. But should associationsmove 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.
HBBs More Efficient
“There’s been so much outsourcing,” notes writer Phil Holland. “Firms are learning that it’s, in some cases, much more efficient and less costly to outsource work than it is to have employees in offices, so that has kind of propelledthe home-based business thing. And for people who haven’t found work and are unemployed, it’s not a bad alternative sometimes to start a home-based business.”
A Los Angeles-based author and self-proclaimed “serial entrepreneur,” Holland has been involved in mentoring new business owners for over two decades. “In the mid ‘80s, I started a chain of donut shops here in Cali-fornia called Yum-Yum Donuts…. While I was in that undertaking, I wrote a book called The Entrepreneur’sGuide, published by Putnam.”
That beginning, says Holland, was the genesis of his current venture, the not-for-profit website myownbusiness.org, which provides in-depth online courses to assist first-time entrepreneurs.
Holland says he’s seen sustained growth in the annual rate of HBB startups since around 2000. “We beganlearning that the economic climate does indeed have hiccups,” Holland notes. Over the past few years, Holland says the rate of HBB growth has increased for two main reasons: “One, the adverse economic climate which is propelling people to start home-based businesses. And second, the tools are now available to do so.”
In addition to economic considerations, HBBs continue to prove an attractive option to many parents of small children who often find work-at-home options to be more viable than traditional employment. And recent U.S. Census Bureau statistics indicate that seniors – a significant demographic group on many condo properties – make up the largest portion of America’shome-based entrepreneurs.
Yet, unlike their non-condo-dwellingcounterparts, many unit owners are unable to benefit from home-based business opportunities – a distinct competitive disadvantage in such tenuous economic times.
Many Condos Ban HBBs
Despite dramatic changes in telecommuting technology, many associations, governed by condo bylaws drafted decades in the past, prohibit home-based business activity of any kind. “The first place to look,” says Attorney Mark Einhorn of the Braintree, Massachusetts-based law firm Marcus, Errico, Emmer & Brooks, PC, “is generally the declaration or the master deed, depending on which state you’re in. And there will be a section with restrictions on the use of units. Many of them say the use may only be for residential purposes.”
These out-of-date prohibitions, says Einhorn, may be a needlessly heavy-handed way of discouraging nuisance behavior. That, after all, is the real concern for most condo boards – not the businesses themselves. “I think sometimes boards go right to the ‘this will not be permitted’ and don’t attack what actually is the concern,” says Einhorn.
“The concern really isn’t the business being transacted in the unit; it’s the effect that activity could have on the association. So if you make a rule or do an amendment that permits a business to operate, but limits the activities that could potentially harm or interfere with the other residents, that would be my suggestion or that would be probably the better way to do it.”
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 say such prohibitions fail to recognize the modern realities of the way business is done in a global economy. “We have a neighbor who lives across the street,” he says. “She has a business of selling very high quality table linens. She only has one class of customer, which are party rental stores. She buys her linens in China [and] the only times she leaves her house is annual visits to China to talk to her suppliers. She has a business that is worldwide – all done online – [and] she is running a very substantial busin ess with literally no organization.She doesn’t have a single employee. It’s all done from her house.”
“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 Studio 44 Jewelry 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,” she says.
In condo situations, where a new HBB could create potential strife among condo residents, management might well caution budding entrepreneurs to consider carefully the image their businesses will project to potential clients. “It’s very important that when customers contact you,” notes Hornsby, “that you appear as professional from your home office as you would from a commercial one.”
Some HBBs Can’t Work in Condos
And as Einhorn is quick to point out, some HBBs simply can’t, or shouldn’t, be made to work in a condo setting. “I’ve had an owner 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…. That’s been an issue on a few instances, too, where you have employees coming for the day and they’re kind of milling about the parking lot on their lunch break, and it doesn’t fit necessarily with the residential nature of the community. And that typically is what other residents will complain about.
“It has nothing to do with the person who’s telecommuting from home, which happens all the time. It has everything to do with the traffic in terms of if there are clients or businessassociates coming and going from the unit and whether there are a lot of deliveries. In one instance, someone was refilling printer cartridges in the unit. Because they were being sent to him by Fed Ex, he was probably getting 20 to 25 packages daily.… That really became an annoyance to the people who shared the hallway.”
While both Einhorn and Holland agree that associations should move to eliminate HBB restrictions on their properties, management companies should be aware of all contingencies and should still take steps to eliminate unwanted behaviors that may compromise residents’ overall quality of life.
Finding an Acceptable Balance
Striking an acceptable legal balance, says Einhorn, may not be as tricky as you think. “There’s always a nuisance provision in the documents themselves,” he says, “which essentially would say something to the effect that an owner shall not permit any nuisance or annoying or offensive behavior to continue in the unit. And that can really be applied broadly…. Even if it doesn’t say specifically that business is not allowed in that the unit can only be for residential purposes, 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 ofneighbor complaints about an otherwise-acceptable HBB. And regardless of association restrictions, or lack thereof, some potential home-based startups would fall outside acceptable zoning guidelines for a particular property.
The key, say experts, is to visit city hall whenever there is doubt. 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 40% 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 condo dwellers – particularly those who may have losttraditional 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.
After all, a financially-stable resident is often a happier, healthier member of any condo community. “I would expect that there would be a much more liberal attitude toward home-based businesses now than there was in the past,” remarks Holland, “becauseit’s so much more commonly done now.
“And one of the reasons it’s more commonly done is because of the IT tools that we have. People can run businesses using websites. They don’t need to go to a store at all anymore.”
“I think the response really should be what’s reasonable and what’s not reasonable rather than a blanket prohibition of business,” says Einhorn, “because some businesses don’t interfere with anything.”