Can Illinois Condos and HOAs Ban Home-Based Businesses? Understanding Commercial Use Restrictions
The COVID-19 pandemic spurred a trend in which many owners in community associations shifted to remote work, with either hybrid or fully remote positions. According to a recent study, 22% of the workforce in the United States, or over 32.6 million Americans, work remotely. In other cases, owners in a condominium or homeowners associations started businesses out of their homes. While home-based businesses without customers are typically allowed under many declarations and bylaws, in many cases, older governing documents were drafted when home-based businesses were less common. While many community associations have amended their governing documents to limit home-based businesses to those without customers, a commercial use restriction in the declaration may ban home-based businesses in many cases. Accordingly, this article will discuss several Illinois court cases that have interpreted “commercial use” in the governing documents and discuss additional zoning requirements that may impact whether an owner can legally operate a home-based business.
Operation of a Baby-Sitting Business Violated Commercial Use Restrictions
In Bd. of Managers of Vill. Square I Condo. Ass’n v. Amalgamated Tr. & Sav. Bank, 144 Ill. App. 3d 522, 494 N.E.2d 1199, 1199, Ill. Dec. 872, 872 (2d Dist. 1986), the Illinois Court of Appeals held that a babysitting business run out of a condominium unit violated the commercial use restriction in the declaration. In that case, a unit owner’s tenant started operating a babysitting business out of the condominium unit, where 8-10 children would be dropped off each day. The condominium association sent a cease and desist letter indicating that the tenant was operating a business violating the declaration, which was ignored. The condominium association filed a lawsuit and requested an injunction to stop further commercial use of the unit. While the trial court did not grant the injunction, this ruling was overturned on appeal due to an issue with improper notice and a hearing, and the Court of Appeals held that notice and a hearing were not required to seek an injunction. Specifically, the Court of Appeals relied on the following language in the declaration in determining that injunctive relief was appropriate:
REMEDIES. In the event of any default by any Unit Owner under the provisions of the Act, Declaration, By-Laws, or rules and regulations of the Board, the Board or its agents shall have each and all of the rights and remedies which may be provided for in the Act, Declaration, By-Laws, or said rules and regulations or which may be available at law or in equity, and may prosecute any action or other proceeding against such defaulting Unit Owner and/or others * * * for damages or injunction or specific performance, * * * or for any combination of remedies or for any other relief. All expenses of the Board in connection with any such actions or proceedings, including court costs and attorneys’ fees * * * shall be charged to and assessed against such defaulting Unit Owner * * *.”
As such, the Court stated that other cases have considered injunctive relief as appropriate to enforce a breach of a covenant, and that the same notice and hearing requirements that apply to fines or evictions were not required when seeking injunctive relief.
In Neufairfield Homeowners Ass’n v. Wagner, 2015 IL App (3d) 140775, 42 N.E.3d 941, the Illinois Court of Appeals held that an owner violating a daycare did not violate the commercial use restriction in the declaration for a homeowners association, as the declaration permitted “personal businesses”. In that case, the declaration states that the developer was to be composed of single-family dwellings, but allowed certain types of personal businesses, subject to the following provision of the declaration:
“Personal Business. The restriction in Section 3.1 shall not, however, be construed in such a manner as to prohibit an Owner from: a) maintaining his personal professional library therein; or b) keeping his personal business records or accounts therein; or c) handling his personal or professional telephone calls or correspondence therefrom; or d) operate [sic] a home-based business, but only if (i) the business is conducted within the residence, (ii) the business is not prohibited by the ordinances or regulations of the City and (iii) no motor vehicle with business markings is parked on the Lot or Common Area overnight * * *. Such uses are expressly declared customarily incident to the principal residential use and not in violation of said section.”
The declaration also contained the following restrictive covenant related to commercial use:
“Other Commercial Activities. No commercial activities of any kind whatsoever shall be conducted in any building or any portion of the property except as provided in Section 3.12 hereof; no such activities shall require or allow customers or the public to frequent the Property for such home occupation.”
One lot owned by Kevin and Melissa Wanger operated a daycare between 6 am and 6:30 pm, Monday through Friday. Melissa Wager was licensed by the State of Illinois to provide daycare for seven children and provide services to that number of children. Steven and Denise Gurley, who owned a separate lot, also operated a daycare, except Denise Gurley was licensed to care for up to 8 children. The trial court determined that the small number of children attending the daycare would not result in the public “frequenting” the property and ruled in favor of the property owners.
The Court of Appeals states that operating a home-based business did not violate the zoning ordinance as there were no commercial vehicles on the property, and no cars were parked overnight, so the daycare was incidental to the residential use of the dwelling. The main dispute on appeal was whether the traffic from the daycare “frequented” the property in violation of the commercial use restriction in the declaration. In upholding the trial court, the Court of Appeals held as follows:
Frequent is not defined in the declaration. Webster’s Third International Dictionary defines “frequent” as “given to some practice: habitual, persistent.” Webster’s Third New International Dictionary 909 (1981). Construing the covenant strictly against the developer and in favor of free use of property, the plain language of section 3.12 and 3.13 intends to allow home-based businesses. Nothing in the record suggests that seven or eight cars entering and leaving the subdivision in the morning and then again in the evening is “habitual, persistent” commercial activity that would thwart the intent of a single family subdivision.
Accordingly, the language of the declaration will determine whether a home-based business is permitted within a community association, and it is important to review the language of the declaration.
Declarations that prohibit Illegal Activity may ban Home-Based Businesses Under the Zoning Ordinance
In some cases, like Neufairfield Homeowners Ass’n v. Wagner, 2015 IL App (3d) 140775, 42 N.E.3d 941, the declaration may permit a home-based business if permitted by the zoning ordinance. In other cases, the declaration may expressly prohibit a home-based business. Yet, in different situations, the declaration may only prohibit illegal activity and may be silent on commercial use. Accordingly, if the declaration prohibits illegal activity, it is important to review the zoning ordinance in a city as to whether a home-based business is allowed. For example, in Chicago, home-based businesses must be licensed and are regulated under Chicago Municipal Code 4-6-270. Municipal Code 4-6-270(a) defines a home-based occupation as follows:
“Home occupation” means the accessory use, of a business or commercial nature, of a dwelling unit by the person(s) residing in such dwelling unit. The term “home occupation” does not include persons who, as an owner or employee, perform administrative, clerical or research work in their home for an entity whose principal place of business is located elsewhere. Nor does the term “home occupation” include any child care institution, day care center, part-day child care facility, group home, day care home or group day care home that is properly licensed by a state agency or by the City of Chicago. Nor does the term “home occupation” include any cottage food operation or home kitchen operation properly registered by a state or county agency or the City of Chicago.
However, Municipal Code 4-6-270(e) contains a lengthy list of home occupations that are not permitted, and that a license will not be issued, which are as follows:
(e) Activities not subject to licensure as a home occupation – Standards. The following activities shall not be licensed as home occupations under this section:
(1) any repair of motorized vehicles, including the painting or repair of automobiles, trucks, trailers, boats, and lawn equipment;
(2) the dispatch, for compensation of any type, of any type of motor vehicle;
(3) animal hospitals;
(4) astrology, card reading, palm reading or fortune-telling in any form;
(5) kennels;
(6) stables;
(7) bird keeping facilities;
(8) barber shops or beauty parlors;
(9) dancing schools;
(10) restaurants or pop-up food establishments as defined in Section 4-8-010;
(11) massage establishments, including massage therapy;
(12) caterers / catering / food preparation businesses / shared kitchens as defined in Section 4-8-010;
(13) funeral chapels or funeral homes;
(14) crematoria;
(15) mausoleums;
(16) medical or dental services and/or clinics;
(17) public places of amusement;
(18) the sale of firearms, antique firearms as defined in Section 8-20-010, or ammunition;
(19) a weapons dealer;
(20) firearm training or instruction;
(21) storage of machines or bulk materials to be utilized in the operation of construction businesses or landscaping businesses;
(22) warehousing;
(23) welding or machine shops; and
(24) any activity that requires a children’s services facility license under Chapter 4-75 of this Code.
Additionally, even if an owner is engaged in a permissible home-based business under the zoning ordinance, the following restrictions also apply under Chicago Municipal Code 4-6-270(g):
(g) Prohibited acts – Standards. It shall be unlawful for any licensee engaged in a home occupation to:
(1) conduct a home occupation in violation of Section 17-9-0202 or other applicable provisions of the Chicago Zoning Ordinance;
(2) allow the home occupation to become the principal use of the dwelling unit. The home occupation shall be accessory, incidental and secondary to the principal residential use of the dwelling unit;
(3) add to the dwelling unit a separate entrance from outside the building for the sole use of the home occupation;
(4) display signage or any other evidence of operation of the home occupation: (i) on the exterior of the dwelling unit or residential building or accessory building or accessory structure in which the dwelling unit is located, or (ii) if the dwelling unit is located in a residential building containing 2 or more dwelling units, on any interior wall or other interior location within such residential building other than the interior of the dwelling unit itself, or (iii) in any location within the dwelling unit or residential building or accessory building or accessory structure that is clearly visible from the public way;
(5) make any internal or external structural alterations or construction to the dwelling unit, whether permanent or accessory, of the type that will change the residential character of the dwelling unit or the residential building in which the dwelling unit is located;
(6) install any equipment of the type that will change the residential character of the dwelling unit or the residential building in which the dwelling unit is located;
(7) allow the total square footage of any home occupation, including any accessory building or accessory structure used for storage or other home occupation business-related activities, to permanently occupy more than 300 square feet or 25 percent of the total floor area of any dwelling unit, whichever number is larger;
(8) produce or emit any noise, vibration, smoke, dust or other particulate matter, odorous matter, heat, humidity, glare, obstruction to the public way, or any other effect that unreasonably interferes with any person’s enjoyment of his or her residence;
(9) (i) hire or retain, or otherwise permit or allow, more than one non-resident employee to work within the dwelling unit in connection with the home occupation. All other employees of the licensee who work within the dwelling unit shall reside in the dwelling unit in which the home occupation is located.
(ii) Nothing in this subsection (g)(9) shall be construed to prohibit a licensee under this section from hiring or retaining non-resident employees to work exclusively outside the dwelling unit in connection with the home occupation.
(iii) In the event of an alleged violation of subparagraph (i) of this subsection (g)(9), the following requirements shall apply: (A) A rebuttable presumption shall exist that an employee has been authorized by the licensee to work within the dwelling unit in connection with the home occupation if such employee is present in the dwelling unit for more than three consecutive hours in any given day. (B) The burden of proof shall be on the licensee to prove, by a preponderance of evidence, that the non-resident employee is an external employee;
(10) regardless of whether a dwelling unit is used for one or more home occupations: (i) allow more than two patrons or clients or non-resident external employees of the home occupation to be present, in any combination, in the dwelling unit at any one time; or (ii) allow more than ten patrons or clients or external employees of the home occupation to be present, in any combination, in the dwelling unit during any 24-hour period; or (iii) allow any person, other than the person(s) who reside in the dwelling unit and not more than one non-resident internal employee, to perform any work in the dwelling unit in connection with the home occupation(s) being carried on in such dwelling unit. Provided, however, that the restrictions set forth in this subsection (g)(10) on the number of patrons, clients and non-resident external employees allowed in a dwelling unit shall apply to all home occupations within such dwelling unit and shall not be cumulative. Provided further, that in the event of an alleged violation of this subsection (g)(10), the rebuttable presumption and burden of proof set forth in items (A) and (B), respectively, of subsection (g)(9)(iii) of this section shall apply;
(11) permit any tractor trailer delivery; or
(12) permit or accept more than one bulk delivery per day (in addition to United States mail service, Federal Express, U.P.S. and messenger services). Any such bulk delivery shall occur between the hours of 8:00 a.m. and 6:00 p.m. and such bulk delivery complies with all applicable provisions of this Code, including applicable ordinances relating to fire prevention and the governing of special types of vehicles on City of Chicago streets set forth under Section 9-64-170.
Accordingly, if a condominium or HOA declaration prohibits illegal activity or limits home-based businesses to those that comply with local zoning laws, it is important to review the applicable zoning ordinances carefully. For example, Chicago’s zoning ordinance includes detailed rules governing home-based businesses, as described above. Similarly, in some suburbs like Schaumburg, Section 154.65 of the zoning ordinance requires homeowners to obtain HOA approval before operating a home-based business if the declaration contains restrictions on home-based businesses.
Conclusion
Since home-based businesses are becoming more common, Illinois community associations need to review their declaration to determine if they are permitted, and if so, under what conditions. In many cases, a community association may need to amend its declaration to prohibit certain home-based business types that do not create nuisances for other owners, as a clear declaration is always important, as evidenced by the above cases. However, in other cases, even if the declaration is silent as to commercial use or home-based businesses, a declaration that bans illegal activity, or only allows home-based businesses that are permitted by the zoning ordinance, may also lead to bylaw violations if a property owner ignores these requirements. As discussed above, if an owner violates the commercial use or home-based business restrictive covenants, the homeowners association needs to contact a community association attorney to obtain an injunction before the business use disrupts the entire neighborhood. If your condominium or common interest community association needs assistance regulating a home-based business or enforcing restrictive covenants, Hirzel Law is here to help!
Kevin Hirzel is the Managing Member of Hirzel Law, PLC, where he focuses his practice on community association law, condominium law, homeowners association law, real estate law, and Fair Housing Act compliance. He is a Fellow in the prestigious College of Community Association Lawyers (CCAL), an honor held by fewer than 200 attorneys nationwide. Mr. Hirzel serves on the CCAL National Board of Governors and was previously a member of the Community Associations Institute (CAI) Board of Trustees. Best Lawyers, Leading Lawyers, and Super Lawyers have recognized Mr. Hirzel. He is also the author of Hirzel’s Handbook: How to Operate an Illinois Condo or HOA, available on Amazon.com. Mr. Hirzel has been featured in major media outlets such as CBS, CNBC, Fox News, Fox Business News, NPR, Newsmax, and The Wall Street Journal. His insights have also been showcased on programs like The Dan Abrams Show (SiriusXM Radio), Dr. Drew Midday Live (KABC Radio), and the Law & Crime Network. A sought-after speaker, Mr. Hirzel frequently lectures at state and national conferences, sharing his deep knowledge of community association law. Hirzel Law, PLC, represents common interest community associations, condominium associations, homeowners associations, and townhome associations in Illinois. Hirzel Law, PLC has offices in Chicago, Downers Grove, and Skokie. Kevin Hirzel can be reached at (312) 552-7669 or kevin@hirzellaw.com.
