Should you let a tenant run a business from home?

Last updated: September 2022 | 4 min read

More and more people are working from home. However, there is a difference between working an occasional day at home instead of in the office, and starting a full-time trading business from home.

The latter can save the business owner large amounts of money – important for start-ups. But there are implications for the landlord if the property is rented.

Permission is required from the landlord

Your tenant needs your permission if they intend to run a business from your residential property.

Permission could be given in the tenancy agreement. It is more common, however, to state explicitly in the agreement (as our assured shorthold tenancy agreements do) that the tenant cannot run a business because doing so doesn't prevent permission from being given later.

Why you might not want to give permission in the tenancy agreement

Your mortgage may not allow it

Most mortgages require that use of your property remains 'only residential'. Others allow use to be 'primarily residential'.

'Primarily residential' means that at least 60% of the property should be used for residential purposes.

If you allow your tenant to run a business from your property, you may be breaking the terms of your mortgage.

It may be inappropriate to run certain types of business from your property

Ask your tenant what kind of a business he or she intends to run. You should understand the exact nature and scope of it.

Some businesses cause significant wear and tear or require structural changes.

For example, the second bedroom may not be a suitable place to store large quantities of corrosive liquids. Metal working equipment may need to be drilled into the floor.

On the other hand, computer based service businesses, such as website development or translation services may require no changes and not result in any greater wear and tear.

Nuisance factors

Consider whether the tenant’s business will cause nuisance to the neighbours.

Will customers visit the property? Does the business involve music or loud noise? Or sports training?

Are there enough parking places for anyone else who might come on to the property? Is an increase in traffic likely to annoy neighbours?

Neighbour disputes may make selling the property more difficult later. Restrictive covenants might be broken.

Requirement for planning permission

You may need to obtain planning permission for the tenant to run his or her business as intended. For example, some outdoor structures, even if moveable, require permission to erect.

Considering changing the terms of the tenancy

You might consider increasing the rent of the property to cover the additional use. You might insist that the tenant obtains business insurance.

More importantly, if the property is significantly used for the business, then a residential tenancy agreement may no longer be suitable. The situation may require a business lease instead. Without one, your tenant might have far more rights (particularly in circumstances of non-payment of rent).

Another consideration is whether business rates become applicable to the property. If so, it is you who will be liable for them.

Risks tend to outweigh benefits

It is unlikely to be convenient to let a tenant run a business from your property

For most landlords, there are simply too many risk factors, even if the mortgage allows a business to be run from the rented property. It is simply safer not to let a tenant run a business, especially with little upside and so much potential downside.

If you refuse to allow your tenant to start working from your property and he does so anyway, then you can start the eviction process.

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