Business At Home: HOA Commercial Restrictions Explained

Many homeowners associations prohibit residents from operating a business out of their homes. But are such HOA commercial restrictions even enforceable?

What Are HOA Commercial Restrictions?

Commercial restrictions in homeowners associations are simply rules that disallow home-based businesses. It is normal to encounter a policy in an HOA community that essentially prohibits owners from operating a commercial establishment from their homes or units. But, given that they bought the house, many homeowners find it unreasonable that an HOA would have a say over what they can and can’t do with their home.

The purpose of HOA commercial restrictions is to maintain the community’s character. Homeowners tend to want to live in a quiet and safe neighborhood. And the presence of businesses within that neighborhood can interfere with that. If a community has a negative reputation, curb appeal, and property values will inevitably plummet.

Are HOA Commercial Restrictions Legal?

Broadly speaking, HOA commercial restrictions are legal and enforceable. However, there are other things to consider. First and foremost, it is important to review state laws. Not all states have the same regulations regarding HOA authority, and what an HOA may be allowed to enforce in one state may not be allowed in another.

Additionally, there are some exceptions to the rule depending on the type of business. For instance, California law offers some level of protection to residential care facilities and daycare homes. Similar laws exist in other states, too.

The association’s governing documents are the next determining factor. If commercial restrictions are included in the CC&Rs, an HOA generally does have the power to enforce them.

It is important to note that zoning ordinances don’t automatically supersede an association’s restrictions. Even if zoning ordinances allow a property to operate for commercial purposes, the association’s rules could still stop the owner from running an HOA home-based business. An exception is when state or local laws specifically state that they trump HOA rules.

The Pitfalls of a Home-Based Business in Community Associations

Why do homeowners associations dislike home-based businesses? Because they come with disadvantages. These include diminished curb appeal, nuisance problems, and safety issues.

Diminished Curb Appeal

As previously mentioned, commercial establishments in a residential community can have a negative impact on curb appeal. It just doesn’t look right when a nail salon or repair shop is in the middle of a row of houses. Plus, all the commercial signs and vehicles can significantly affect the character of the association.

Creates a Nuisance

A home-based business can also create a nuisance for neighbors. Customers and workers entering and leaving the neighborhood can interfere with other people’s quiet enjoyment. The added noise and traffic of operating a business from home can turn a once-quiet community into a hectic one.

Issues With Safety and Security

Finally, it can give rise to safety and security concerns. A full-blown business with customers and workers can cause neighbors to feel unsafe in their own homes. After all, these strangers have been given access to the quiet neighborhood. It’s even more concerning if the business operates out of a gated community.

How to Enact HOA Commercial Restrictions

Provided state laws allow it, your HOA board can create commercial restrictions by following the steps below.

1. Review Existing Zoning Ordinances

The first thing you must do is review the existing zoning ordinances in your area. If the zoning ordinances already prohibit commercial-use properties, then your board might not have to do anything at all. When a homeowner asks to put up a shop or already has, you can point to local regulations. Your HOA can even secure the help of local authorities.

2. Determine Restrictions

If zoning ordinances are of no help, you must establish the rules yourself. When determining which restrictions to enact, it is important to consider the needs and character of your community.

It is best to avoid more general clauses, such as only allowing properties to be used for residential purposes. There is a lot of gray area there. Be more specific. You can prohibit all commercial-use properties and define what “commercial” means.

Of course, you should remember that not all home-based businesses are made equal. There is a huge difference between a nail salon welcoming customers and a desk jockey working from their home office. An all-encompassing rule that bans all kinds of home businesses may be unfair to the latter.

Find the middle ground. You can develop a policy that prohibits home-based businesses that change the nature and character of the community. For instance, a lawyer who simply reviews cases at home doesn’t have the same effect on the community as a shipping business.

You can also dive deeper and prohibit businesses that welcome customers, employ workers, and use commercial vehicles. That’s another way to be more specific with your HOA commercial restrictions.

3. Amend the Documents

Once your restrictions are ready, you must amend your governing documents. This is an important step because the board’s authority is primarily based on the governing documents of the HOA.

In case of a lawsuit, courts will also likely side with the association if the rule appears in the governing documents. Depending on state laws and the governing documents, amending your CC&Rs generally requires you to secure a vote from the membership.

Boards should be prepared to deal with some pushback from homeowners. Not everyone will agree to the change. But, homeowners who value their investment and community will more than likely vote to approve it.

The Bottom Line

As you can see, HOA commercial restrictions do serve a purpose. They help maintain the character and appeal of a community, which, in turn, helps preserve property values. Although an HOA can generally restrict home-based businesses, there can be exceptions depending on your location. Ensure your HOA board reviews state and local laws before leaping to make a policy. When in doubt, consult a lawyer.

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