4 THINGS YOU SHOULD DO BEFORE OPENING A BUSINESS IN YOUR HOME
By John Lione and Laura Fowler
According to Small Business Trends, 69% of U.S. entrepreneurs start their businesses at home. While neighbors probably will not complain about a few visitors who look and act like guests, a steady stream of clients and customers parking in front of your home is likely to provoke complaints, fines and penalties if you have not done your due diligence to protect yourself and your home-based business or home office.
The following are four things you should do before you open a business in your home:
- Check what the city requires of you to do business out of your home.
The first thing to check is what city your address is actually in. Many people assume they are residents of a larger metropolitan area and later find that the actual city that governs their residence has different regulations than the nearby hub. Occupational and business permitting requirements differ dramatically from city to city. Being transparent and having a full understanding of the governing laws of business in your city is very important. You gain nothing from hiding your operation and you have much to lose. You should contact the city business permitting officials where your home is located and ask before you set up a home business or office.
- Be aware of deed restrictions and zoning.
If your home is located near an elementary or high school, church, temple or other place of worship; the nature of your business may be a factor. Sales of alcohol or firearms and the preparation and sale of food are just a few examples of activities that federal or state law limit or outright prohibit. It is important to find out if your home is zoned for business before declaring your home office open for business.
Even if your home is zoned for some types of business, restrictive covenants control over zoning. Make certain no wording in the deed limit what you can do in your home. Do not assume because the deed restrictions are very old and have not ever been enforced, they are not valid and enforceable.
Often, even in areas that are still largely rural, there can be serious limitations upon the use of the land – particularly in the number of animals present, types of animals, or other similar limitation. A well intentioned individual or organization who wants to purchase farmland or a ranch where they plan to board animals may find such regulations can severely limit what they can do. Check the deeds and other restrictions before you purchase any property or attempt to convert a residential use into a commercial or business use.
- Read your homeowner’s association or condominium agreement.
Many HOA and residential condominium agreements expressly prohibit the use of a residence for commercial or business purposes. This comes as a shock to some of our friends who have used a home office for years without any objection. A homeowner’s association is perfectly within its right to prohibit all commercial or business activity conducted from a residence or the grounds. Telling a judge that, “everyone else is doing it,” is not a defense to a valid homeowner’s or condominium agreement restriction of use. The new breed of rules governs mixed purpose retail and residential spaces and surprises some owners. What may be done on one floor such as street level may not be lawful at on other levels or other parts of the building.
- Check with your insurance agent to confirm that business activities conducted in your home are covered.
Some homeowner’s policies expressly exclude coverage of business related activities. Converting a portion of your home into a business, even a residential business such as a short or long term residential rental may require you to declare the activity and purchase additional coverage. The sale or serving of food or beverages, particularly alcohol for a business reason likely requires an additional policy of insurance.
About your authors:
John Lione serves as The Fowler Law Firm PC Section Chief Real Estate and Construction. He was one of the first class of attorneys certified by the State Bar of Texas in Commercial Real Estate Law in 1984 – making him one of the three most tenured Commercial Real Estate Specialists. He finds real estate litigation and transactional work equally gratifying and regularly practices both.
Laura Fowler is the Managing Shareholder of The Fowler Law Firm PC. She is a regular speaker to real estate and business groups and an instructor licensed to teach continuing education courses required by the Texas Real Estate Commission.
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