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Can a tenant run a business from a rented house?

Article Posted - 4th September 2019

Can a business be run from rented property?

With the growth of the short-term work contracts, and the parallel rise of Generation Rent, more and more people are wanting to know if they can run a business from a rented property. As a landlord, this could pose problems. Business tenants have particular needs and have a different legal status from residential tenants.

Can a tenant run a business from a rented house?

Standard AST contracts have hitherto tended to specifically exclude business use, and one reason is that business tenants may have the right to stay in the property (under the Landlord and Tenant Act 1954 which governs business tenancies) when residential tenants would not. However, that's increasingly an anomaly in a world where many people are running small businesses from home that may involve no more than using a computer at the kitchen table. So, in 2015, the Government passed a new piece of legislation, the Small Business, Enterprise and Employment Act, which effectively says that if the tenant is running a ‘home business', the tenancy will be treated as residential. The definition given is somewhat vague – “a home business is a business of a kind which might reasonably be carried on at home” – but it does require that the tenant lives at the property, and there is a general rule of thumb that no more than 40 per cent of the premises are used by the business.

What to consider with home offices

As a landlord you will have to check if your buildings insurance policy has any exclusions for any commercial enterprise being run from the premises. Similarly, you'll have to check whether the terms of your mortgage would be breached, or if there are any covenants against the building being used for business purposes. If energy bills are included in the rent, there could be extra cost. A lot will depend upon the nature of the business: in the case where the tenant is working alone at a computer, there are likely to be few objections. But if it requires frequent visitors or deliveries – for example a childcare nursery – you may need planning permission or even a local authority licence, and business rates could become applicable. All in all, you may decide to charge the tenant extra rent, to compensate for the hassle involved and any higher insurance or other charges you have to pay.

What can I reasonably refuse?

Since the 2015 legislation, you can no longer exercise an absolute prohibition on tenants running a business. Instead your tenancy agreement should “provide for tenants to ask permission which should not be unreasonably refused”, says Tessa Shepperson of Landlord Law. Grounds on which you can reasonably refuse to allow a business are that it will cause a nuisance, it will cause excessive wear and tear on the property, or that it might give rise to a business tenancy. When giving permission, you should only allow the specific business that has been agreed, and this should be set out in an appendix to the tenancy agreement. As a general rule, don't allow the exterior of the property to be altered in any way, and you should also require that the tenant has all the necessary insurance – for example liability insurance – for the business.

#Avoiding Risk

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