Home Office and Telecommuting:
Making Sense of Business Use Restrictions

by: Jeffrey A. Goldberg

The covenants of most associations prohibit the commercial or business use of a unit with only a few narrow exceptions. Typically, the declaration will state that: "no unit shall be used except for residential purposes", or no "business of any kind be conducted therein" or "no business or trade of any kind...shall be carried out in or upon a unit." The only exceptions allowed typically are provisions that permit professional libraries and papers, and allow owners to make business calls from their units. As home-based businesses, telecommuting, and home office uses become more and more popular, the reality of the unit owner's lives inevitably come into conflict with these covenants. An association board needs to know how to respond to these new circumstances.

The association's board has a duty to enforce the declaration, but it is the board that must decide how and when to meet this duty. An association's board, as the board of directors of an Illinois not for profit corporation, is required to exercise business judgment in the conduct of all of its affairs. That means that the board is obligated to use ordinary care in operating the association in the same manner as a reasonably prudent person would do under the same or similar circumstances, and that the board must make a reasonably informed decision in good faith. The board should understand, therefore, that enforcement of the covenants is not a rigid exercise. It is a matter of reasonable and informed opinion. The opinion that counts the most in an association is the opinion of the board in the exercise of business judgment. In reviewing whether or not it wanted to proceed with enforcement action in a specific case, it would be prudent for the board to consider all of the
factual circumstances and background, including the likelihood that a court would enforce the covenants in a particular situation. It would not be good business judgment to expend the funds of an association in litigation that has little chance of succeeding.

There is a presumption in the law towards the free use of real property unless prohibited by a reasonable restriction. What is reasonable ultimately is decided by the court based upon the specific facts and circumstances of a case, the apparent intent of the covenants, and the current conditions of the property. In reviewing the reasonableness of a business prohibition, it is likely that the court would make some inquiry as to the purposes behind the association and the declaration, and the intention of the drafters of the declaration in prohibiting business uses. The nature and character of the violation would also be scrutinized to see whether it would interfere with the interests that the covenant was designed to serve. The court also may inquire about the current conditions in the community.

It is likely that the court would find these types of covenants are intended to preserve the residential character of the neighborhood and to prevent nuisances and annoyances that might accompany commercial activity. Certain incidental business uses of the property would be consistent with the residential character of the property while other business uses would most directly conflict with such character. For example, an owner who used a unit for the purposes of some type of industrial manufacturing would be clearly violating the letter and spirit of the restriction. But there are many instances in which a fine line exists between the residential and commercial character of a use. What difference would it make if a unit owner who cares for his or her own children in a home began taking care of the next door neighbor's children? The question of whether money is being accepted for child care does not seem particularly relevant to the inquiry. The activity of children playing, eating and sleeping is consistent with the ordinary residential use of the unit regardless of whether the caretaker is being compensated. Of course, if too many children were present, the unit would begin to resemble a day care center rather than a home. The additional traffic, noise, and liability from such an arrangement would probably make the difference between a permitted and prohibited use under the covenants. In this way, the facts and circumstances of a particular case would be addressed by the court to determine whether or not the use can be reasonably prohibited by the covenants.

Another relevant consideration is that the present conditions of the community may differ from the conditions existing at the time the restriction was written. Many association restrictions were drafted in the sixties and seventies. Over the past decade, home offices have become more and more commonplace. As long as home offices do not make any impact in the surrounding community (in terms of noise, traffic, deliveries, etc.), and as long as the homeowner also resides in the home and does not use it exclusively for an office, then it is likely that the court would interpret residential use covenants to allow a home office. It would be unreasonable to interpret the restriction so narrowly, for example, to prohibit a sales person or business executive from making business calls from his or her home. It would be hard to distinguish that type of incidental use from many other types of home office use.

When it comes to home office uses, or baby-sitting of a few children, an association board would do well to pause and consider whether it would be in the best interests of the association to proceed with enforcement activity. An association's board knows its own property the best, and therefore the board itself is the best entity to make conscious choices of what activity is allowed and what uses must not be permitted.

A blatant disregard for the business prohibition (such as a homeowner who does not reside in the home but uses it exclusively for an office) would have to be vigorously pursued by the board. Likewise, a board must stop any use of a unit that is wholly inconsistent with the residential character such as manufacturing or retailing, or any potentially dangerous, loud, annoying uses or those which tend to generate customer traffic or deliveries.

In conclusion, restrictive covenants and their enforcement cannot be rigidly applied. The covenants have to be reasonable and they have to be reasonably enforced. The board must exercise business judgment by considering all of the facts and arriving at an informed business decision in good faith. In doing so, the board could interpret business use covenants to reasonably contain an implied exception allowing business uses that are incidental to use of the units as residences as long as they do not interfere with the residential character of the neighborhood, such as many baby-sitting and home office uses. At the same time, business uses that pose a hazard or annoyance must be stopped.

It is highly recommended that associations carefully consider what kinds of business uses are acceptable and what kinds are not, and then prepare an appropriate set of rules and regulations to govern the business use of units. When preparing rules and regulations, the association must retain competent counsel to review the proposal and to draft appropriate and enforceable language.