Can a tenant run a business from my property?
This was all so simple once upon a time. People went out to work. People stayed home to work (if say, they lived above their shop). People stayed home and didn’t work. Those were the choices. That’s why we had two kinds of tenancies (residential and commercial) and two pieces of legislation: the Housing Act 1988, which covered residential tenancies only, and the Landlord and Tenant Act 1954, for commercial tenancies only.
But things change. And, today, there are all sorts of hybrid and halfway house arrangements that mean we have to ask the question: what do we mean by ‘running a business from home’?
Take a freelance designer. She or he takes over one room for work purposes, with perhaps a drawing board, easel, and a computer. This freelance designer is running a business from home. Now consider a self-employed carpet salesman and fitter with no shopfront or warehouse. Carpet is stored in the garage and in the hallway; there’s packaging that is a fire risk until it’s disposed of, and a commercial vehicle that is in and out of there at all hours. This is a home-based business that has more impact on the building and the neighbourhood than the designer has – but not as much as the home-based hairdresser. People come to his/her property, so there’s personal liability insurance to consider, and various chemicals get washed away down the sink.
So there we have three different examples of a business run from home, and each is going to have a different impact on the building. Before we look at the nature of those impacts, and what you do about them, let’s deal with the question: can the tenant do this? The answer is yes, the tenant almost certainly can.
The law is now very clear: provided the property remains primarily residential (which means that at least 60% of it is used as a residence and not for business purposes), the tenant can use it for business. But, and this is a big but, the tenant must have your (the landlord’s) permission in writing beforehand. As the landlord you may refuse, but you may not refuse without good reason.
In fact, the only grounds on which you are allowed to refuse are:
1. Because your mortgage specifically indicates that the property must be residential only. Now, the reality of this is that many mortgages will say that the property must continue to be primarily residential, and that is not the same as residential only. The tenant cannot demand that you change your mortgage in order to permit a business to be run from the premises.
2. If you can show that the result of running the business would lead to excessive wear and tear (for example, from the chemicals used by hairdressers), then you may be able to decline.
3. If the effect of the business would be to cause a nuisance to people in neighbouring properties. This might be excessive noise, an increase in local footfall, or an increase in the amount of traffic in and out of the property.
If your tenant approaches you and asks for your written agreement to a business being run out of your property, then there are some other things you might want to take into account:
- Who is paying the electricity bills and telephone bills? The tenant or you? If it’s the tenant, then any increase brought about by running the business won’t matter to you, but if you pay the bills, then you might want to request an increase in rent to cover the additional cost on condition of granting permission.
- On the same subject, are you responsible for providing internet access? If so, you may want to transfer that responsibility to the tenant so you are not held liable when insufficient broadband access damages the tenant’s business.
We’ve talked about what happens when the tenant asks your permission to run a business from your premises. But what happens when the tenant does not ask, and you find out later that a business is being run? Worst case scenario: your tenant has installed a kiln in the garage. The kiln was left on full blast while the tenant and family went away for the weekend. When they came back, the house had burned down. Bad enough, you may think. It’s about to get worse. When the loss adjuster asks the tenant what the kiln was for, the tenant explains that he was making clay pots for sale to the general public. ‘That,’ says the loss adjuster, ‘is business use. And my client only covers this property for residential use.’ The insurance company refuses to pay out. When you suggest to the tenant that they had better make good the loss, he or she can protest they have lost everything they own.
Fixing this problem after the event is almost impossible, which is why you should not let it arise in the first place. Knowing your tenant is an essential part of being a successful landlord. If you don’t leave nearby to the property, you may need someone working on your behalf who can manage the rented property.