Real Property Issues

Restrictive Covenants and Home Businesses (or Working from Home)

Great Introduction
Though the economic environment appears to be improving, or maybe it just feels to be improving to the press, times are still less-than-ideal for a number of people.  The benefit to such less-than-ideal employment circumstances is that the true ingenuity of the human mind comes to the fore.  This is not at all to take away from or criticize the benefits of corporate citizenship, of course, but rather to look as fondly as is possible the “brighter” side of the road–creative destruction
I recall hearing an anecdote on NPR several years ago (a timeframe which, sadly and tellingly, could nonetheless encompass this current economic morass) about an interesting anomaly: a small town was the birthplace of a relatively large number of start-up companies, invention and patent claims.  It turns out that the local Boeing plant had either closed or downsized, and those unemployed engineers took it upon themselves to create new wealth.  It’s like they say: you can lead a horse to water, but engineers are crazy-creative.

Insanely Smooth Segue
Similarly, current (and ongoing) economic struggles have led a number of individuals to strike out independently on their ideas and skills, outside existing corporate structure.  Here in the Research Triangle Region of North Carolina, for example, we’ve seen the rise of business/start-up incubators.  Despite such incubator resources, or in some places in the absence of such incubator resources, some new businesses are choosing to operate from home.  
From a land use perspective, operating a business out of a residence can present some unique challenges.  There can be lease issues, restrictive covenant issues, zoning issues, environmental issues (I’m looking at you, home-based nuclear waste disposal company).  

The Lawsuit, Which Is Why We’re Here, Talking to Each Other
Last July, the North Carolina Court of Appeals issued an unpublished decision regarding the application of restrictive covenants to a home business–Matthieu v. Miller
In the lawsuit, Plaintiff neighbors sought to permanently enjoin defendant neighbors, the latter who operated an electrical business out of their home, The covenant at issue commanded that the “premises shall be used only for residential single-family dwelling purposes” and included a specific covenant that: “[n]o business, trade, or commercial activity of any kind, including farming and the practice of a profession, shall be conducted on the premises.”
After noting the principles that (1)restrictive covenants are strictly construed in favor of the unrestricted use of property” and (2) “[d]oubt [about the terms of the covenant] will be resolved in favor of the unrestricted use of property”, the court affirmed the trial court’s decision to issue an injunction against the home business (“Miller” and “J&S”) and to issue the injunction on specific terms.  Specifically, the court determined that the trial court was correct under the restrictive covenant terms to prevent the home business from: (1) meeting with employees or subcontractors of J & S or any other Miller business/sole proprietorship for business purposes; (2) allowing employees or subcontractors of J & S or any other Miller business/sole proprietorship to park their vehicles; (3) parking more than one van or other commercial vehicle; (4) storing commercial equipment or inventory for J & S or any other Miller business/sole proprietorship except for tools kept in the allowed van or other commercial vehicle; and (5) offering commercial vehicles, equipment, or inventory for sale.
What still bothered plaintff neighbors, however, and what the trial court chose not to enjoin (and what plaintiffs therefore appealed) were certain administrative aspects of the electrical business conducted out of the home:  “performing other clerical activities incidentally related to their electrical business, i.e. listing the street address of Lot 16 as a business address, making telephone calls, using the internet, and invoicing.”  The appellate court affirmed the trial court’s decision not to enjoin these “clerical activities” under the restrictive covenants because these “are all activities that take place within the confines of defendants’ residence, and do not destroy the residential character of the property or defeat purpose of the restrictive covenants.”

 

Plaintiff neighbors may have been overly aggressive, yes.  And we applaud the Court’s tempered and practical view of the applicable restrictions.  But folks operating businesses or conducting portions of their business in any form out of their homes in North Carolina, to whatever degree, should still pay attention to the possible restrictions whether in the form of leases, covenants, zoning, or other manner of government or private regulation.  
Also, one is also left to wonder why this was not a zoning case.  Really, selling commercial vehicles and equipment?

 

Mike Thelen practices in Womble, Carlyle’s Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Categories: Real Property Issues

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