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Workplaces Hit Close to Home

In 2010, James Sonzero bought a unit at the Lofts @ Hollywood and Vine condo development. The building, a former office tower converted into 60 live-work units, offered 24-hour valet parking, a landscaped roof garden and laundry delivery at one of the entertainment district’s busiest intersections for prices exceeding $1 million a unit.

But Sonzero has never lived in his 11th-floor condominium. It serves only as the headquarters of his Sonzero Films, which has produced commercials for the likes of L’Oreal and Neutrogena.

He is one of nearly a dozen condo owners at the complex – representing about one-fifth of the units there – who live elsewhere and use their units exclusively for commercial purposes. The practice has not sat well with other condo owners, however, and the building’s homeowners association has clarified its rules to more explicitly discourage strictly commercial use of the units. The new rules, and the penalties associated with them, have prompted a lawsuit between seven owners and the association.

Experts said it’s unusual for live-work spaces to be used exclusively for commercial purposes. Still, the dispute points up the problems that are starting to pop up as more business is being done out of condos. And with the growing number of people working from home and the increasing densification of Los Angeles, legal disputes are arising over the proper use of condos.

The issue has also cropped up at the posh new Ritz-Carlton Residences at L.A. Live, which bans any nonresidential use of the units. A condo owner there has been accused of running a destination spa in his unit, resulting in a legal battle with his homeowners association.

“With the resurgent world of mixed use, lofts, live-work, where does that line get blurred?” said Seth Weissman, an attorney at Jeffer Mangels Butler & Mitchell LLP who is not involved in the case. “It’s important to lay out the foundation of what it is somebody is purchasing – are they buying a unit they can work in or live in or a hybrid? Are the people running a home office versus a business that involves welcoming people from the outside world?”

Different rules

Most condos in the L.A. area, whether they’re part of purely residential complexes or in the residential portion of mixed-use developments, are blocked from any kind of nonresidential use by city zoning codes and by regulations set out by governing homeowners associations. It’s generally up to associations to enforce the rules with fines – and sometimes litigation – but they usually don’t raise a fuss over, say, a home office that doesn’t disturb neighbors.

“A lot of people are working from home, but even though they’re operating businesses out of primarily residential condos, they’re not interfering with anybody, so nobody makes a big deal about it,” said Bob Champion, chief executive of Champion Real Estate Co., which has developed several condo complexes in Los Angeles.

Interventions come when neighbors see the business as a nuisance. Champion said he had a resident who was operating an import-export business in 2010 at his Burbank Collection. The homeowners association put a stop to the practice with a cease-and-desist order after complaints about merchandise being shipped in and out of the building.

Exceptions are commercial condos, which are zoned for commercial use and operate as office spaces, and live-work condominiums, which allow for limited business use. The Lofts @ Hollywood and Vine is a live-work development, a designation that makes up less than 5 percent of the L.A. condo market, according to Paul Habibi, a real estate lecturer at the Anderson School of Management at UCLA.

An L.A. city ordinance allows for joint living and working for certain kinds of occupations in units designated as live-work: accountants; architects; artists and artisans; attorneys; computer software and multimedia-related professionals; consultants; engineers; several kinds of designers; insurance, real estate and travel agents; photographers; and “other similar occupations.”

In 2010, the city’s zoning code was amended to more explicitly require a live-work unit to be “regularly used by one or more persons residing there.”

That change has been a central point of contention in the legal dispute at the Hollywood complex.

Marc Rohatiner, an attorney at Wolf Rifkin Shapiro Schulman & Rabkin LLP representing seven owners there who have sued their homeowners association in Los Angeles Superior Court, said his clients were ordered to stop commercial use of their units last year by their homeowners association because of the ordinance changes.

“None of them contemplated using this as living space,” he said.

The clients include Basil Glen Ballard, a Grammy-winning music producer, and David A. Stewart, a musician best known for his band Eurythmics, both of whom use their units for studio recording. Another unit is owned by Yelki Proprietary Ltd., an Australian entity that uses the space for a photography business. Some of Rohatiner’s clients don’t live in town, though at least one lives in another unit in the building.

Attorney Russell Higgins, who represents the homeowners association, said the units were in violation and were a nuisance to neighbors.

But David Hurtado, a broker at the Keller Williams Realty residential real estate brokerage in downtown Los Angeles, said what’s at stake could be more than added daytime foot traffic or noise. Most lenders who finance residential condo purchases will only write loans if a building is more than 50 percent owner occupied – if that is not the case, a unit owner would find it hard to resell units or to refinance.

Hurtado has seen condo homeowners associations crack down on business uses as well as investors who don’t use their condos as a primary residence.

“If the building no longer qualifies (for financing), you’re going to get on the HOA board and raise hell,” he said.

In the homeowners association fight brewing at L.A. Live, Kevin Xu, an executive at Ontario drug development company Skingenix Inc., has been accused of running a spa in one of his two condo units and using the other as a spa call center. The complaint appears to have originated from a group of USC students from China who live in the condos and were being solicited by a business associate of Xu, according to court filings.

Xu has sued his homeowners association, and his attorney denied his client was running a business, saying one unit was a residence for Kevin’s father, Chinese stem-cell scientist Rongxiang Xu.

Hurtado said such fights figure to become more common.

“They are happening more, as a lot of investors are buying condos and using them for different uses,” he said.

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