It’s estimated that around one in four people now carry out some of their work from home, due to the way the working environment has changed in the last decade or so.
Most British households have Internet access and a personal computer or laptop, making it much easier to work from home full or part time, but there are obviously pitfalls for landlords who rent out a residential property to someone and the tenant decides that they want to use it for business as well as residential use.
What is Business Use?
A residential tenancy and a commercial tenancy are different in law, so if your prospective tenant is likely to carry out their business from your property, your general residential tenancy agreement isn’t going to cover them to do so. It must also be one or the other type of agreement, it can’t be a residential tenancy with ‘a bit of business use’ – there are legal and financial implications from using a residential premise as to carry on a business.
Legislation supports the distinction between the two - The Housing Act 1988 excludes business tenancies - and the Landlord and Tenant Act 1954 doesn’t apply to residential tenancies. Unfortunately, though, with advances in working practices the different situations that a tenant could find themselves in don’t always slot neatly into one or the other.
Common sense would dictate that when you’re deciding whether a tenancy is a business or as residential tenancy, you’d look at the main use – so if the tenant uses the property as a home but also works from the spare room occasionally, it’s a residential tenancy. However, the Court of Appeal ruled a few years ago that a tenancy which had started off as a business use tenancy, but had changed to become just a residential one was still covered by the Landlord and Tenant Act 1954. In another case, a doctor rented a flat and asked the landlord for specific permission to practise from there, although he had separate consulting rooms apart from the residential premises. It was decided that this wasn’t a business tenancy but it might have been if he didn’t have the separate consulting rooms.
When a Tenant Works from Home
There are several situations that might require a tenant to work from home;
1. They might bring work home from the office sometimes;
2. They may work on the road – a salesman for example – and bring paperwork back to do, using the premises as a base but not a registered business;
3. They could be working remotely for a business based somewhere too far away to commute;
4. They may run a sole trading business from home;
5. They may be running a multi-person business from home, taking deliveries and collections, seeing customers and storing stock;
6. They may be running a Bed and Breakfast, a Nursery, or even letting the property out as a holiday home!
The first two situations are clearly residential tenancies – many people have to take work home sometimes. Again, it’s also pretty obvious that situations 5 and 6 are businesses – but where do you draw the line on situations 3 and 4?Assured Tenancy Agreements
Most standard Assured Tenancy Agreements contain clauses that prohibit some uses, and the clause should read something like: "Not to receive paying guests or carry on or permit to be carried on any business, trade or profession on or from the property." – If it’s clear that your tenant is seeing clients at the property or using the property as a business, they may be in breach of their agreement. The reason for a clause like this is that if a tenant runs their business from your property, it needs to have planning permission and they need to pay business rates. If there’s no planning permission and the tenant isn’t paying the correct rates, the tenant is legally liable, but it will be you as a landlord who gets chased first by the authorities.
The property is likely to need planning permission if:
- The property is no longer mainly a private residence;
- What it’s being used for is considered unusual in a residential area;
- The tenant trades to the public from the premises;
- Using it as a business might impact on traffic or cause a nuisance with people calling at the property
- The use is likely to create excess dust or smells.
- Practically speaking, many people freelance from rented properties. However to err on the side of caution, I would advise that you consult your landlord and also the local planning department.
Freelance Tenants
Clients who work freelance are likely to work from home as standard – so what’s the situation if, for example, your tenant is a freelance writer working from a spare bedroom? As far as planning permission is concerned, running a home-based freelance writing or IT business isn’t likely to impact with more traffic or visitors, so it’s not likely to cause too much of a problem.
If your tenant is a freelance hairdresser or beauty therapist however, the situation is slightly different, as there will be more people, traffic and potential parking problems.
All of these situations are subject to legal definition and if there was a dispute it would be judged on its merits, so if you’re in any doubt as to whether to let your property to a freelancer or allow them to carry on business from home, seek professional legal advice.
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