New York's Cooperative and Condominium Community
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What can you do about residents who turn their apartments into business sites?
Although many properties have rules against home businesses run in apartments, as a board, you do have options when residents are working from home.
Metal factory. Forge. Tallow chandlery. Manufacturer of gun powder, glass, glue, or friction matches. Gambling house.
Back in the mid-1800s, those were among the enterprises banned through restrictive covenants in some New York neighborhoods. Quaint and outdated? Yes. But as precursors of today’s zoning codes and building-specific rules, such covenants are more than just novelties. They hold important lessons for co-ops and condos concerned about residents operating businesses – even for buildings that simply forbid all non-residential uses of their units.
First, the most basic lesson: anticipating potential problems from home businesses can be a very good idea, even if they don’t involve gunpowder or rendering animal fat into candles.
For boards, that vigilance starts with screening potential buyers or shareholders. Of course, boards can’t discriminate against applicants based on their professions. “But you can ask an applicant, ‘Do you intend to practice your profession in the apartment?’” says Arthur Weinstein, an attorney in private practice and vice president of the Council of New York Cooperatives & Condominiums (CNYC). “That’s a legal inquiry. That’s a proper inquiry.”
For example, you can ask a musician when he intends to practice, and if the answer is 3 A.M., a board can turn him down on that basis. “This is something I tell people all the time,” says attorney Marc Luxemburg, a partner at Gallet Dreyer & Berkey and president of CNYC. “The turndown has to be based on facts specific to that particular person and what they intend to do and not on generalities.” He hastens to add that there’s a great deal more to effective screening of applicants.
A board also can turn such knowledge into money: some buildings charge professionals a fee – such as a percentage of the maintenance charges – for the privilege of working out of their apartments. Weinstein knows of many such arrangements, all of which are only on first floors. However, such an arrangement is legally tricky, warns the attorney. “You could write a law review article on this. There are all kinds of wrinkles.”
For one thing, certificates of occupancy are typically for residential use only, and amending the certificate to allow for commercial use can change a co-op’s valuation and put it at risk of higher taxes. Also, the IRS regulations that allow co-op shareholders tax deductions say that all issued shares in a building must be for residential purposes – but the IRS has also issued an opinion saying that the use is okay if the unit can be converted back to residential use. You can make that case with a psychiatrist’s office but probably not with, say, a store.
Charging a fee is not common, however. “Certainly, there’s some justification for it if a psychiatrist is making use of the building facilities, such as the doorman and the elevator, more than a residential use would,” says Luxemburg. But as far as he knows, none of the 60-some buildings he represents (roughly 5,000 units in all) charge such a premium. “You can only do that in a building where the proprietary lease doesn’t allow the person to use the apartment as a professional office,” he adds.
Making your rules clear to all concerned is also a very good idea. “This is a fact: most people don’t read their building’s documents,” says Dan Wurtzel, president of Cooper Square Realty. “They don’t read offering plans; they don’t read bylaws.” Boards can help make the rules more accessible by separating them from other building documents. Cooper Square Realty offers to publish separate handbooks, whether in print or online, for the buildings it manages – which include The Plaza Residences and about 400 other buildings. “We try to communicate it as a resident manual so it’s not lost and built into a 300-page offering plan,” says Wurtzel.
The second lesson from the old covenants is that trying to identify all objectionable businesses is like shooting at the proverbial moving target. Yesterday’s tallow chandler may be today’s primal scream therapist or tomorrow’s indoor aquaculture farmer. “Nothing is more creative than the New York mind when it comes to real estate,” says Weinstein.
Consider how poorly the lists from old covenants have held up, a point made in 2006 when The East Sixties Property Owners Association tried to oust a group of dentists practicing at 218 East 61st Street. The suit cited restrictions in covenants written in the Civil War era by brownstone dwellers on 61st and 62nd Streets between Second and Third Avenues (now the Treadwell Farm Historic District). But New York Supreme Court Judge Faviola Soto found that dentistry “could hardly be construed as falling under the same rubric as a slaughter-house, smith shop, brass foundry, tannery, brewery, distillery, circus or managerie [sic].” She also cited the “well-settled legal principle that restrictive covenants are to be narrowly construed.”
Even section 12-10 of the New York City zoning code, written in 1965, can seem somewhat arbitrary when it bans home offices for just a handful of occupations – among them stockbrokers, barbers, veterinarians, real estate agents, interior decorators, and teachers when they instruct more than four students at once (but only one if the subject is music). For the record, the code also limits the amount of space most “dwelling units” can use for a home occupation to 500 square feet, or no more than 25 percent of their floor space.
The zoning code applies even in buildings that explicitly allow business use of dwellings, and boards may want to consider making those rules clear to residents. It can be found at http://www.nyc.gov/html/dcp/pdf/zone/art01c02.pdf with a search for “home occupation.” If your building’s rules are stricter than those of the zoning code – which has several additional provisions – the building’s rules trump the code.
But be warned: citing city rules is a very different matter from turning to the city for help in resolving complaints – a step that boards may want to avoid. “It’s a wild card,” says Luxemburg. “You don’t know what the city is going to do with it.”
That said, in any building, regardless of the rules or code, who is going to stop the stockbroker or novelist down the hall from working at home? That question leads to the third and perhaps most important lesson related to antiquated restrictions. In the case of the dentists at the 61st Street property, the covenants included an umbrella ban on dangerous or offensive work, but the judge’s ruling included a key finding of no evidence that the dental offices were dangerous or offensive. So, the case boiled down to two questions: are the dentists really bothering anyone, and where’s the evidence that they are?
Those issues are at the heart of prudent oversight of home businesses in today’s co-ops and condos. The takeaway point for today’s boards is to focus not on whether a business is going on but whether it disturbs neighbors. Weinstein calls it a “complaint-driven” strategy. “I don’t know of anything that would substitute,” he says. “As a practical matter, it’s the best solution.”
Even if a building’s units are meant for residential use only – and almost all co-ops’ governing documents dictate just that – the reality is that a great deal of the work going on behind closed doors doesn’t bother anyone. That’s why trying to stop just one resident from working can be problematic. Says attorney Steven S. Anderson, a partner at Anderson & Ochs: “In this day and age, where everyone works virtually, where do you draw the line? It’s a judgment call.”
For instance, Steve Miller, president of Plymouth Management, once worked with a building’s board to resolve a complaint from a resident about a seamstress who was working in her apartment. The objection? “It was just that the seamstress was running a business out of her apartment and that’s not allowed,” says Miller. “We decided it was not a battle we wanted to fight, because we might not win it.”
Is there a way a board can perform an analysis and decide whether the matter is worth pursuing? “The benefit is not a dollar-or-cents benefit. It’s a quality-of-life benefit,” Luxemburg notes. So how do you go about evaluating on a dollar-or-cents basis a quality-of-life issue? “Boards have to view legal fees against what it is they’re going to accomplish. The cost side of that you can make some estimates about, but the benefit side is hard to translate. With odors, it depends on how obnoxious it is, if the smells are mildly annoying or terribly annoying. Each one of these situations is unique.”
The residential-use-only argument still can be powerful in court. But the more a complaint can specify tangibly bothersome or dangerous conditions – especially if they are listed in your building’s governing documents – the better. Unlike the ever-changing nature of home occupations themselves, the actual ways in which neighbors disturb one another don’t change much over time.
With the complaint-driven strategy, boards don’t have to rewrite their rules to try to cope with new types of businesses. “The materials are all there in the standard provisions of proprietary leases,” says Weinstein. “You can fit just about any situation into one of the standard provisions.”
If a board puts together a resident manual or otherwise goes over the rules with residents, it can stress the most relevant and effective provisions, which usually are those concerning deliveries, noises, odors, strangers in the building, obstruction of common spaces, posting of signs, elevator access, installation of antennas and air conditioners, trash disposal, and apartment alterations.
Some occupations stand out as potential bad actors. “Probably the biggest source of complaints are psychiatrists and psychologists,” says Luxemburg, who notes that the usual complaint about therapists involves their visitors, who can be security risks. “They see people once an hour, so every hour you’ve got a different person coming up.” He knows of at least one building in which the solution was not to shut down the practice, but to require the therapist to escort his clients into the building from the lobby.
Then there was the case Weinstein handled of a psychotherapist who practiced Rolfing, which can feel to clients like a very forceful massage. “He had complaints from every one of his neighbors when his clients started groaning at the tops of their lungs,” says Weinstein.
Other occupations that can generate complaints include eBay dealers (deliveries and boxes in hallways); personal trainers with home gyms (strangers and noises); and New York’s versions of bed and breakfasts, which seem to be multiplying faster than you can say airbnb.com (security risks).
Buildings can nip problems in the bud by being both watchful for the actual disturbances, such as unusual numbers of deliveries or strangers in the hallways, and by asking building personnel to log the evidence. Beyond that, says Cooper Square’s Wurtzel, “I can’t tell you there’s this boilerplate for handling these sorts of problems, because they vary and you just have to develop a method of tracking what’s going on.”
“In most situations,” concludes Weinstein, “common sense should prevail.”
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