It’s understandable to be worried about a tenant using your property for business purposes. Could it devalue the property? Affect your mortgage? Is it even legal?
The answer to all of those questions is: it depends. It’s important to know what you’re within your rights to refuse as a landlord, as well as what your tenant’s rights are regarding running a business from a rental property.
- Assured shorthold tenancy agreement
- Deed of surrender of lease template
- The self-employeed guide to Self Assessment tax returns
- Landlord insurance FAQs
Is it legal to run a business from a residential property?
The short answer to this is yes, but there are some stipulations. The property must remain residential first and foremost, which often means no more than 40% of it should be used for commercial purposes. As many small businesses are operated from home office or one-room workshops, this shouldn’t be a problem, but it’s best to make this clear to your tenant when they approach you about their business, just in case.
And that’s another important point. If a tenant wants to run a business from a rented property, they have to have the landlord’s permission in writing. However, new regulations which came in last year mean a landlord can’t ‘unreasonably’ withhold permission if a tenant asks to run a business from their property.
What am I reasonably allowed to refuse?
There are three grounds on which landlords are allowed to withhold permission.
1. Mortgage change
The first is if the tenant’s business would require you to change your mortgage, which means the property must remain primarily a residential premises.
2. Wear and tear
The second ground is if the tenant’s business would significantly increase wear and tear to the property. For several types of home business this shouldn’t be a worry - many small businesses can be run just by using a computer, from writing and translating services to web design and development, consultancy, and even some start-ups.
However, if the business is not computer-based, there could well be increased wear and tear to your property. Home-based hairdressers, for example, may use chemicals to dye and treat hair, while childminding or pet sitting businesses may not be kind to furnishings and fittings. Make sure you understand the exact nature of the business your tenant is hoping to start so that you can accurately judge whether it is likely to increase wear and tear.
3. Nuisance to neighbours
Finally, you can refuse your permission for a home business if the tenant’s proposal would cause a nuisance to the occupants of neighbouring properties. This can simply be in terms of noise - due to music or the operation of machinery, for example - or it could be to do with increased footfall in the area. If the tenant will have clients visiting the property there may also be parking issues that would inconvenience neighbours.
If a tenant does approach you about running a home business and you’re unsure if their proposal could fall under any of the above brackets, you can check with your legal advisor, letting agent, or the Citizens Advice Bureau.
What to consider with home offices
If you are happy to have a tenant running a business from your property, there are some other things to consider when drawing up the tenancy agreement. If you have previously included heating or electricity bills in the rental price, be aware that your bills could be substantially higher if the tenant works from home. You can mitigate any losses by either raising the rent or requiring tenants to pay for heating and electricity.
Additionally, if you provide the internet for your property, tenants who run a business from home may hold it to a more exacting standard than those who just use it for leisure activities. Make sure you are clear about whether the internet connection you provide is for residential or commercial purposes, or ask the tenant to set it up themselves.
Have you had a tenant run a business from your property? What happened? Let us know in the comments section below.