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. And according to U.S. Census figures, some 100,000 New Yorkers work from home, with more switching all the time.

Those numbers should not be lost on co-op and condo 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 governing documents, 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 Los Angeles-based author and self-proclaimed “serial entrepreneur” 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 propelled the 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.”

Holland has been involved in mentoring new business owners since the mid 1980s, and wrote a book about his experiences called The Entrepreneur’s Guide. His current venture is a not-for-profit website—www.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 home-based business startups since around 2000. “We began learning 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 is propelling people to start home-based businesses. And two, the tools are now available to help them.”

In addition to economic considerations, home-based businesses continue to prove an attractive option to many parents, who often find work-at-home options to be more viable than traditional employment, particularly if their children are small. And recent U.S. Census Bureau statistics indicate that seniors—a significant demographic group in many condo communities—make up the largest portion of America’s home-based entrepreneurs.

Yet unlike their non-multifamily dwelling counterparts, many shareholders and 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.

Many Condos Ban Home Business

Despite dramatic changes in telecommuting technology, many associations, still governed by bylaws drafted decades ago, 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 may be a heavy-handed way of discouraging nuisance behavior. That, after all, is the real concern for most co-op and condo boards—it's the noise, the traffic, the potential security implications for the community at large—not the businesses themselves.

"I think it's a fine line to walk," says Dan Wurtzel, a registered apartment manager and the president of Cooper Square Realty in Manhattan. "Boards need to be able to articulate to their general counsel what parameters they want to have and maintain. Then they need to have their general counsel direct them on how best to document those parameters so that prospective purchasers who may run a business from home have an understanding of what they're walking into before they buy the apartment and move in, and then realize there's an issue."

Modern Realities

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,” she says.

In multifamily situations, where a new home-based business could create potential strife among co-op or 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.”

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."

Parking lots aren't such an issue in the middle of Manhattan, but having non-resident employees entering and having free access to the building 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.

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.”

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.

Staying Within the Law

In New York City, there are various 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 they can sell.

For example, according to the Department of City Planning (DCP) zoning resolution, home businesses cannot sell articles produced off-premises; they can’t have outside signs or a display of goods that are visible from the outside. The business can’t store materials or products outside of a principal or accessory building or other structure; or in certain districts, display a nameplate or other sign except as permitted in connection with the practice of a profession. According to the DCP, “The business cannot make external structural alterations which are not customary in residential buildings, or cause offensive noise, vibration, smoke, dust or other particulate matter, odorous matter, heat, humidity, glare, or other objectionable effects.”

So what businesses can be run from a co-op or 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 tenants.”

The resolution strictly prohibits advertising or public relations agencies, barber shops, beauty parlors, commercial stables or kennels, depilatory, electrolysis, or similar offices, interior decorators' offices or workshops, ophthalmic dispensing, pharmacy, real estate or insurance offices, stockbrokers' offices, and veterinary medicine.

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.”

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 business. And regardless of building restrictions, or lack thereof, some potential home-based startups would fall outside acceptable zoning guidelines for a particular property.

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 40 percent of co-op or condo owners do not have private insurance, it can be said with some certainty that the percentage of properly-insured home-based 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. “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.”

Matthew Worley is a freelance writer. The Cooperator’s Hannah Fons and David Chiu contributed to this article.