The apartment entrepreneur: If you aren't one, you probably know one. Starting a business out of an apartment is smart and very doable. But is it legal to start a business out of an apartment? Everybody has a friend writing a screenplay or music, consulting, or trying to turn a hobby into a moneymaker…all from the comfort of residential rental property. This is not to mention the boom of tech start-ups begun out of living rooms and garages not only in Silicon Valley, but all across the United States.
Operating your home-based business under the thumb of a landlord is not always a good thing, however. And on top of possible restrictions in the lease, there may be actual zoning laws that forbid your endeavor.
Be careful. Running afoul of your lease or local laws could shut your growing business down for months while you try to break your lease.
The first thing you should do is take a look at the situation. If you haven't started your business yet, there are some resources you can tap to see if your business will be on the up-and-up before you spend a lot of time and effort just to see it go to waste.
First, check your lease.
Every lease sets out the dos and don'ts for the lessee. That's you. Sometimes these restrictions are set out in general rules that pertain to the building (often called “Rules and Regulations”). If your lease is silent, that doesn't mean you are in the clear. If your business has the potential to be disturbing to other tenants (teaching drum lessons comes to mind…), it may violate other aspects of the lease.
Another thing: If you are renting a condo unit from the owner, condominium CCRs (Covenants, Codes and Restrictions) are often more restrictive on home-based businesses than apartments.
To be safe, talk to your landlord or the building owner and see if you can get him or her to be reasonable. Provide assurances that once it gets to a certain size or profitability, you will rent separate space. Note that if the property is managed by a conglomerate–which is often the case in larger properties–it will be difficult to get them to waive this restriction.
Next, check all the codes.
There are generally three areas where your business plans might get into in trouble: Zoning laws, Home-based Business ordinances and Business licensing.
The stated purpose of zoning is to separate incompatible land uses like commercial, residential, agricultural and industrial. In reality, zoning is a permitting system designed to prevent new development from causing harm to existing adjacent land use. You can check with your local land use department to see what your property is zoned as and what that means for you.
Residential, commercial, and mixed-uses are common and can take many forms. If you have the time and want to put in the effort, you can request a waiver–often called a “variance”–to allow for an exception to a zoning restriction. Dealing with local government can often be time-consuming and difficult. Many find that it's easier to move to an area that has pre-approval for mixed or commercial uses.
If your local area has an ordinance that covers home-based businesses, take a look at it to make sure that your plans are acceptable. These ordinances can vary widely, but most are logical and prevent you from running a commercial enterprise that would be damaging to the area where you live. For instance, a business like a rental management service that sees a lot of foot or car traffic is not likely to fly on a quiet cul-de-sac. Also, these ordinances often limit the number of employees a home-based business can have.
You should take a trip to your city hall and check out what business licenses you need, if any. Failing to get a license can result in fines and penalties. Even if you aren't required to get a license, many municipalities require registration, which is less of an onerous process, but equally advised.
Do you need to move?
The last thing you want is to get your business shut down just when it is getting good. If you are truly worried that you are breaking the law and just can't fix it, look into breaking your lease and moving on. This isn't always easy (or cheap), since an apartment lease is a formal contract. Breaking it without consent can carry heavy consequences, from the loss of your security deposit to a judgment that requires you to pay for a year of rent–even if you have already moved out!
Legislatures are pretty pro-renter in general, but you still need to know your rights and obligations before you decide to break your lease and start your business in a more favorable area. Again, check the terms: how much time is left on the lease, what are the penalties and is there any way you can mitigate them by finding a new renter?
You might even be tempted to take your chances and just leave. Don't do it! You can be on the hook not only for the lease value, but also attorney fees if the landlord sues you. This can also have a negative effect on your credit and ability to rent in the future!
Of course, if you haven't taken the step of starting your apartment-based business yet, then you are in a much better position.
Taking the steps above can go a long way to ensure that once you start your company, you won't be interrupted with distractions that could shut you down on a technicality.