Parallel to the steady rise of Generation Rent has been the growth in popularity of flexible, agile working and self-employment - and so more people than ever are interested to know if they can run a business from a rented property. The answer is a little complicated, however…

If you’re a landlord, before you consider authorising tenants to base their work from your property, 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 home.

Is it illegal to run a business from a residential rental property?

In the first instance, it’s important to clarify the difference between ‘working from home’ occasionally, and basing an entire business at your address.

However, in short, it is legal providing the property remains primarily residential, which means that no more than 40% of it should be used for commercial purposes.

As many small businesses are often operated from a home office (eg, spare bedroom) or one-room workshops (eg, the garage or shed), 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.

Further to this, tenants must have confirmation from you (in writing) that you are happy for them to run their business from home, so make sure you’re confident that their intentions are clear and you’re fully comfortable with them. However, regulations that came into play in 2015 mean that landlords cannot ‘unreasonably’ deny permission if a tenant asks to run a business from their home.

So, what can a landlord ‘reasonably’ refuse?

There are three main grounds on which a landlord can refuse permission to run a business from their residential property.

  1. It conflicts with the terms of your mortgage - First and foremost, if your mortgage terms stipulate that your property be used solely for residential purposes then a tenant’s request to base their business from home would require you to change your mortgage. Many mortgages will say that the property must continue to be ‘primarily residential’, but note that this is not the same as ‘residential only’. A tenant cannot demand that you change your mortgage and so on these grounds, you can decline permission.
  2. Wear and tear - The second ground is if the tenant’s business is likely to significantly increase wear and tear to the property. For several types of home business, this shouldn’t be an issue – many small businesses can be run just by using a computer – however, if the business is not computer-based there could be damage more extensive than wear and tear to your property. Home-based hairdressers or beauty therapists, for example, may use chemicals. While childminding or pet sitting businesses are likely to be unkind to furnishings and fittings. Therefore it’s important that you’re sure on the exact nature of the business your tenant is hoping to run so that you can accurately judge whether it is likely to increase wear and tear.
  3. Causing a nuisance to neighbours - Finally, you are within your rights to refuse your permission if the tenant’s proposal would cause a nuisance to your neighbours. Whether this is in terms of noise, traffic or footfall, you’d be surprised how quickly neighbouring properties could be affected by your tenant’s choice to run a business from home, especially if it’s customer-facing.

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 points, you are able to check with your legal advisor, letting agent or Property Manager or the Citizens Advice Bureau.

Things to consider if your tenant’s business is home-based

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, internet or electricity bills in your rental price, be aware that your bills could drastically increase if the tenant works from home on a regular basis. You can mitigate any losses by either raising the rent of requiring tenants to pay for heating and electricity directly to the utility providers if you don’t already.

You must also ensure that your tenant has their own public liability insurance in place if they’re providing a service – this is particularly important if the service itself is being run from your property, such as personal training, beauty or cosmetic treatments or holistic therapies. It would be worth checking any terms of your landlord insurance policies, too, as existing policies are likely only to cover residential use. If an incident occurs at the property because of undisclosed business use, your insurance claim may be refused.

For further guidance as to whether you should accept or decline a tenant’s request to base their business from your property, contact your local Romans lettings team or your property manager.