For landlords, the question of whether tenants should be able to run businesses from the rental home can be tricky. But with the spread of Covid-19 around the World, it’s one many property owners will need to consider.
The number people who are self-employed has grown rapidly since the 2008 financial crash. A new report commissioned by O2, has found that 45% of employees predict a permanent change in their employers’ approach to flexible working when the COVID-19 (Coronavirus) lockdown lifts.
In addition, many of those made redundant during the outbreak will setup on their own.
Working from home as a freelancer or a small business has significantly altered the way people split their time between work and leisure – and the way in which they use their homes.
Is it legal to run a business from a residential property?
Things were much simpler last century. Unless they lived above a shop, people tended to go out to work – or stay home and not work. As a result, there were two kinds of tenancies (residential and commercial) covered by two separate pieces of legislation: The Housing Act 1988, which covered residential tenancies only, and the Landlord and Tenant Act 1954, for commercial tenancies.
As the workplace has changed, landlords are often faced with decisions about what type of work is permitted on their premises. Is a freelance designer with a computer and drawing board in the spare room ok? What about someone in sales who stores samples in a garage or hallway? Or a home-based hairdresser with callers coming to the property, and the public liability which that entails?
On the question of whether a tenant can run a business from their rented property, the law is quite clear – and in general the answer is yes, they can.
Provided the property remains primarily residential (which means that at least 60% of it is used as their home), the tenant can use it for business. But the tenant must have your permission in writing first.
What am I reasonably allowed to refuse?
As the landlord, you may refuse, but only for one of these reasons:
- Because your mortgage specifically indicates that the property must be residential only. Many mortgages will say that the property must continue to be primarily residential, this 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.
- If you can show that the result of running the business from home would lead to excessive wear and tear on the property, you may be able to decline. For several types of home business, this should not be something to worry about. Many small businesses can be run just by using a computer.
- If the home business would cause a nuisance to people in neighbouring properties. This might be through excessive noise, heavy footfall or increased traffic.
If your tenant approaches you about running a business from the property, you should consider the nature of the business, and whether it will have a detrimental effect on the property and local area.
You should also make sure that the tenant has their own public liability insurance if they are providing a service.
What about the bills?
If you are happy to have a tenant running a business from home, there are other things to consider when drawing up the tenancy agreement.
Think too about who is currently responsible for paying utility bills, the tenant or you? If you pay the bills, you might want to request an increase in rent to cover the additional cost on the condition of granting permission.
And if you are responsible for providing internet access, think about transferring responsibility to the tenant, so that you are not held liable if broadband issues impact on their business.
You should also check your insurance policy before agreeing as the property may only be covered for residential use. If an incident occurs at the property as a result of business use, your insurance claim may be refused.
Depending on the type of business your tenant is running, they may need a licence from your local authority. Running a business from home may also affect their Council Tax, because the part of your home that they are running a business from may be liable for business rates. You can find out more at the Valuation Office Agency.
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What about registering a business at a rented property?
Is having a company registered at the rental property the same as running a company from there?
Registering a company at an address doesn’t mean necessarily that the business is run from there. Indeed, it is very common for companies to have their registered offices at their accountants’ address where they are most certainly not being run from.
Before coming to conclusions, have a chat with the tenant and find out more; certainly before taking any action.