I need to see the area and you will need a railing so post pics of the space and the chairlift you are using.

We are getting the smallest foldable chairlift, and the handrail has to be removed to allow clearance for the chairlift user. As mentioned contractor said recessed handrail won't work. Love to hear any ideas.

Can the handrail be raised enough to clear the chairlift? This might be unconventional, but handrails at shoulder height could work. Alternatively, you might be able to recess grab bars at the usual height by placing them where there are no interfering studs. You could do such grab bars on both sides to make it convenient for people who aren't using the chairlift.

A raised handrail seems like the simplest solution, but you have to stay within code requirements for maximum height of the rail above the treads. This dimension may vary depending on where you live. I suggest you contact your local code authority to get input.

You may be able to rebuild a supporting wall and make the stairs wider. It ain't all that.

Our contractor says that cannot be done based on what is on the other side of the wall (water heater) -- not sure if he is correct.

Raised handrail might work if it is really flat/low profile, but I would def have to find out what the code requirements are for my area. A friend suggested small handles positioned up high and along the wall?

"A friend suggested small handles...." Not likely to be code compliant, either.

I'm sure this is true... Seems like there isn't an answer that will safisfy all needs. Might have to just go with the really high hand rail and then when circumstances allow, remove the chairlfit and reinstall the handrail at a code-acceptable height.

I'm not sure what the issue is. If the existing handrail needs removed because the chair, when in use, will not clear how far the handrail sticks out from the wall, move the handrail to the other side. When the chair is not in use, it is folded up at either the top or bottom, so the rest of the stair is as it was originally, except the handrail is now on the opposite side. When the chair is in use, the handrail should not interfere with the user as their knees are below the handrail (which is sticking out on the opposite wall).

The other option is just to leave off the handrail until the chair lift is removed in the future.

The chairlift company seemed to think the stairway is so narrow that the knees of the chair user would definitely hit any railing (even a very slim one) if it was mounted according to code. We were thinking of leaving it off totally but now realize the rest of the family should have something to hold on to while going up and down to do laundry. It's certainly not ideal -- it's too bad the recessed handrail won't work.

Maybe look into an elevator instead? A back facing chair will work wonders for that stairwell. As well Like 3onthetree idea in that the handrail can go behind the chair instead of opposite the chair lift.

Moving a water heater shouldn't be a deal breaker for rebuilding the stairs correctly. Get a direct vent on-demand heater that can go almost anywhere. I'd be extremely uncomfortable living with those stairs-- can a firefighter in full gear get up and down them while carrying an unconscious person?