Resident Can Operate Daycare Business from Unit

Facts: An owner started eviction proceedings against a resident for operating a daycare business in her unit, which is located in a HUD building where the resident had lived for 35 years. On the date of the trial, attorneys for both parties entered into a formal agreement to resolve their dispute.

The agreement provided that although the resident is using her unit as a daycare center, it’s being used merely “as an incidental business, which generates only incidental income.” Also, the resident represented that she has insurance to cover the premises as a daycare center and agreed to provide proof of insurance and to provide additional proof of coverage if the insurance policy expires. The agreement further stated that if there was a breach in agreement, either party could restore the eviction proceeding to the court’s calendar.

The owner asked the court to restore the proceeding to the calendar because the resident allegedly violated the terms of the agreement. The owner claimed that the operation of the daycare center in the unit is the resident’s primary source of income and therefore not an “incidental business,” which generates only “incidental income.” The resident didn’t dispute that the daycare generates her primary source of income, but she maintained that she hadn’t breached the agreement. She argued that the term “incidental business,” as written in the agreement and HUD Handbook, implies that in order to legally operate a business out of a HUD unit, the operation of the business must be incidental to the residents’ use of the unit as her primary residence.

Ruling: A New York civil court ruled for the resident and rejected the owner’s request.

Reasoning: The court stated that the HUD Handbook and the Code of Federal Regulations clearly permit residents occupying units in HUD buildings to operate businesses that generate a primary source of income for the resident so long as the resident is occupying the premises as his or her primary residence. Additionally, the May 21, 2001, HUD Memorandum explicitly found that HUD regulations limiting an in-home daycare facility, in contravention of state law, are unenforceable. Also, the owner merely cited the dictionary definition of “incidental,” which isn’t applicable here.

• Riverdale Osborne Towers Housing Assocs. LLC v. Keaton, August 2013