Regulation of Home-Based Businesses
September 29, 2006
The current interest in regulating (or in some cases, deregulating) home-based businesses is generating much discussion by local and state government legislatures. Improvements in technology have increased opportunities for people to run full-fledged businesses from the comfort of home on a part-time or full-time basis. The boom in technology – wireless Internet, blackberries, cell phones, faxes and more – has helped contribute to the boom in home-based businesses.
Conflicting Goals: Traditional Zoning vs. Home-Based Businesses
If the statistics are even remotely accurate, the number of home-based businesses has grown at a staggering rate. In 1991, there were a recorded 20 million people (other than farmers) working at home at least part-time. In 1995, that number jumped to 43.2 million people, with 12.7 million working exclusively in home-based businesses. Nationwide, the number of home-based businesses appears to range from 18 million to 38 million, depending on who is counting. Finally, 52 percent of all small business in the U.S. are home-based businesses.
While technology is developing at an astounding rate, municipal zoning codes and other local and state laws and regulations simply have failed to keep up with the incredible growth. Instead of welcoming home-based businesses with open arms, many home-based workers are finding that most municipal zoning codes severely limit home-based businesses. The reason is simple – zoning regulations are intended to structure communities and enhance residents’ quality of life by designating areas of land for specific uses. Most zoning codes intentionally keep commercial and residential uses separate and apart, which, in most cases, is an attempt to protect the residential character of a community or neighborhood. Obviously, this separation is squarely at odds with the concept of a home-based business, which is, essentially, a commercial use of residential property.
Municipal Home-Based Business Regulations
While there are a few communities that actually ban home-based businesses altogether, it is not the majority approach. The recent trend has been to modify existing zoning regulations to allow home-based businesses but to adopt strict operational limitations on these businesses.
Most of these regulations can be classified into four or five categories:
1) limitations on the types of businesses or activities that may be conducted in a home
2) restrictions on employees of the home-based business
3) regulation of the exterior appearance of the home in which the business is conducted, including restrictions on exterior signage relating to the business
4) operational restrictions on the home-based business, including hours of operation, traffic and parking restrictions
5) regulation of adverse impacts on neighboring properties
Limitation on Types of Businesses or Activities
There appear to be two approaches in regulating the types of home-based businesses. The first approach lists all of the types of uses that are prohibited as home-based businesses. For example, the city of Simi Valley, California, prohibits the following from being conducted out of a home:
• repair, servicing or manufacturing of automobiles, trucks, motorcycles, boats or their engines
• harboring, training, breeding, raising or grooming of dogs, cats, or other animals
• processing, packaging, handling or selling of food
• healing arts with patients on the premises
In this approach, the municipality has usually made a determination as to the uses that are incompatible with the residential character of an area. These may include on-site retail sales and anything to do with motor vehicles or animals.
The second approach in regulating the type of businesses is to list all of the allowable home occupations. Most communities specifically allow “professionals” to work from home. However, the definition of “professional” can lead to interesting decisions. For example, one court held that a karate teacher was not a professional but, instead, a music teacher for purposes of home occupation regulations. Another court held that a pest exterminator was not a professional because this type of work is not similar to the examples of professionals listed in the zoning code.
In addition, zoning codes often require that a home-based business be a secondary or incidental use to the residential use. It seems somewhat obvious, but what the regulations state and what the courts have upheld is that in order to qualify as a home occupation one must actually live in the home.
The secondary use regulations may also include a prohibition on the use of “accessory buildings” for the home occupation or a limitation on the area within an accessory building that may be used for the home occupation (e.g., garages, storage sheds, etc.).
Many zoning regulations restrict the amount of space that a home-based business can occupy in the residential dwelling. For example, Topeka, Kansas, limits the amount of space that may be used for a home-based business to 25 percent of the floor space. Spokane, Washington, also limits the business to “the lesser of 25% of floor space or 200 square feet.”
Employee Restrictions
Most home-based regulations include restrictions on individuals employed as part of the business. For example, many zoning codes limit the number of home-based business persons who may be employed. Most jurisdictions prohibit the hiring of any non-residents or limit the number of the non-resident employees.
Regulations on Exterior Appearance and Outdoor Activities
Many zoning regulations restrict the physical appearance of a home-based business by prohibiting physical changes to the exterior of the home and restricting exterior signage. The obvious intent is to keep a home looking like a home, even when operating a home-occupation. These regulations vary from Longmont, Colorado, (prohibits any exterior change to the “residential character of the home”) to Kennewick, Massachusetts (prohibits both external and internal changes to the home).
Zoning regulations relating to outdoor activities typically restrict business activity to inside the residence. For example, many codes explicitly state that business activity must be conducted entirely within the dwelling and may not extend outside of the dwelling.
Zoning regulations relating to signage either place restrictions on the types or size of signs that may be displayed, or prohibit the use of non-residential signs altogether. For example, Paradise Valley, Arizona, permits small nameplate signs but Topeka, Kansas, prohibits all exterior signs relating to the home occupation. In restricting signage for home occupations, the focus is often on the size and placement of the sign, as well as restricting obtrusive features such as illuminated or projecting signs. Some communities even prohibit advertising of the home occupation, going so far as to ban the listing of the business address in telephone directories or other publications.
Operational Restrictions
Many zoning codes contain restrictions on the traffic that might result from the operation of a home-based business. For example, zoning regulations might restrict: (1) the number of visitors to the home-based business each day; (2) the number of visitors who may be on the premises simultaneously; or (3) the hours during which visitors may visit the business.
Some zoning codes restrict deliveries by limiting the number of deliveries and even the size of delivery trucks. Deliveries are sometimes limited to widely-recognized postal carriers, which inherently limits the size of trucks and frequency of deliveries.
Limitations on parking to protect the residential nature of the neighborhoods in which the home-based businesses operate are also common. Codes sometimes require off-street parking for business-related visitors, forcing the land owner to build an additional parking space or spaces. Alternatively, some codes provide that parking must be accommodated as part of the residential use without changing the residential character of the neighborhood.
Zoning regulations relating to the parking of commercial vehicles at the residence are intended to minimize the visual impact of potentially large and cumbersome vehicles. Some zoning regulations address this issue by restricting the size and/or type of vehicles as well as any signage on the vehicle. Codes may also impose off-street or out-of-sight parking requirements.
Adverse Effects
Zoning regulations attempting to reduce the adverse impact of home-based businesses on their surrounding areas can be classified as addressing two issues: nuisances and hazards. Zoning codes commonly include a list of nuisances that are either limited or prohibited, whether generally or as part of the home occupation activities. These nuisances include the usual suspects: “noise, vibration, odor, glare, fumes, electrical interference or hazards greater than that usually associated with residential uses.” Codes may prohibit all listed impacts, or may prohibit named effects when caused by business equipment. More often, codes prohibit nuisances when they are objectionable, obnoxious or when they exceed levels normally found in the neighborhood. As a general rule, zoning codes prohibit the use and/or storage of hazardous materials.
State Intervention
While zoning regulations are traditionally enacted and enforced at the municipal level, this has not stopped a few states from getting involved in the home-based business regulatory arena. Several states recently enacted statutes preempting or severely limiting the ability of local governments to prohibit or restrict home-based business activities in their jurisdiction. These statutes range from a very broad statement in a Vermont statute that prohibits local governments from adopting any regulation that would “infringe” upon an individual’s right to use a minor portion of a dwelling for a home occupation, to a more narrow limitation in a California statute that expressly overrides municipal zoning, building and fire codes, and local government regulations pertaining to home day-care businesses. Until municipalities have satisfactorily addressed in their local zoning codes these newer issues relating to home-based businesses, it is likely that more states will step in.
A version of this article appeared in the American Law Institute/American Bar Association’s (ALI-ABA) Land Use Institute course of study materials, August 17-19, 2006.
For more information, e-mail Julie A. Tappendorf at julie.tappendorf@hklaw.com or call toll free, 1-888-688-8500.