Tenant Home Business Tenancy Agreement

Tenant Home Business Tenancy Agreement Template

I got the call.

Hey Landlord, is it ok if I run a small “beauty treatment” business from the property [even though our tenancy agreement specifically forbids me from doing so]?

Hmm…. it could be worse, ‘spose. She could be asking my permission to house an abandoned Great Dane from the local rescue shelter – a moral dilemma I wish to never be caught up in!

Sure, you’re cute, so you have my blessing! However…

So, the purpose of this blog post is to go over the considerations and processes I went through in order to allow my tenant to run a small business from my rental property…

Tenant Running Home Business

Table of contents

Why I gave my tenant permission to run a home business

To clarify, I didn’t blindly agree to my tenant’s request i.e. I don’t have a hard and fast rule whereby I permit all tenants to operate a home business from my rental property. I took the following into consideration:

  • Most importantly, I trust my tenant; she has been a wonderful tenant for several years and we’ve had an amazing relationship;
  • the nature of the business;
  • the practicality/logistics of running the business from the property;
  • whether running a home business will invalidate my insurance or mortgage policies;
  • since 2015, legislation makes it more compelling for landlords to permit tenants to run a home business (I’ll go into more details on this issue further down).

In short, I couldn’t muster up any reason to refuse the request, so I didn’t. If your situation doesn’t tick the same boxes, you may end up with an alternative decision. It’s your call.

Small Business Enterprise and Employment Act 2015 (New Legislation in 2015)

Before 2015, the default position for Landlords was to point-blank refuse tenants from operating a home business, and understandably so, because it could result in an assured shorthold tenancy converting into a business tenancy under Part 2 of the Landlord & Tenant Act 1954. That essentially meant:

  • The tenant might become entitled to an automatic right to seek renewal of the lease, effectively giving them a lifetime tenancy;
  • The new property use could put landlords in breach of the planning legislation.

Fortunately, on the 1st October 2015, the problem was solved with the introduction of the Small Business, Enterprise and Employment Act 2015, which was an amendment to Part 2 of the Landlord & Tenant Act 1954.

Essentially, landlords became excluded from Part 2 of the Landlord & Tenant Act 1954, which meant it became safer to allow tenants to run a home business because the security of tenure was no longer at risk (i.e. a home business tenancy will no longer give tenants the automatic right to seek renewal of the lease in most circumstances). Please note, there are a couple of caveats:

  • the new legislation only applies to tenancies in England & Wales created on 1st October 2015;
  • the main purpose of the property must remain residential.

Definition of a “Home Business”?

As per the Small Business Enterprise and Employment Act 2015, a “home business” is defined as the following:

a business of a kind which might reasonably be carried on at home.

Operative word being “reasonably”

While there doesn’t seem to be any precise examples provided in the legislation as to what constitutes as “reasonable”, it does state the following:

A business is not to be treated as a home business if it involves the supply of alcohol for consumption on licensed premises which form all or part of the dwelling-house.

Moreover, I think common sense – as usual – will prevail here. For example, I would consider the following home businesses reasonable:

  • Web designer/developer
  • Accountant
  • Mortgage broker
  • Virtual assistance
  • Beauty services (as long as it doesn’t disrupt neighbours, for example, by people visiting the property at all hours)

Businesses which might be deemed as not so reasonable:

  • Off license
  • Shop/cafe
  • Mechanic

As a general thought, I would consider any business reasonable if it’s “low impact”. For example, it should not be obvious from the outside of the property that a business is in operation, and the operation of the business should not disturb neighbours/local residents.

Apparently this is a bit of a debated issue. But after doing my research (check out my Can My Tenant Run A Business From A Residential Rental Property? blog post for more details), I’ve concluded that landlords can refuse.

According to this article on LandlordsGuild.com, “There is no requirement for the landlord to reasonably consider any request”, “you [landlords] can choose whether to allow a home business or not.”

I interpret that as landlords being able to deny tenants from operating a home business even if it’s considered “reasonable”. However, unless there’s a legitimate reason to do so, I can’t imagine why any sane landlord would refuse.

What to do if you agree to your tenant running a home business

If your happy to allow your tenant to operate a low impact business from home – what should you do next?

Check for restrictions

Before steaming ahead all guns blazing, I can only urge you to check on your end for any restrictions that may prohibit any business use of the property:

  • Landlord insurance policy
  • Mortgage policy (if applicable)
  • Lease (if applicable)

Check if any of those contain clauses that restrict your tenant from operating a home business. Specifically look for clauses that suggest “residential-only” use. If you’re unsure, it might be best to contact the supplier(s) directly for clarity.

If they do contain restrictions, then you could try to seek permission for this to be changed, and also get written confirmation if successful. Otherwise, your hands will be tied and it would be unwise to permit your tenants to run a home business from the property.

From my experience, landlord insurance policies often cause problems, so it’s imperative to ensure you’re not voiding your policy by allowing your tenant to run a home business.

Setting out the terms and conditions

My primary concern is to ensure I have clauses in place to protect my position and ensure my safety. For example:

  • The only business allowed is the specific home business that has been discussed and I have agreed to. That means, my tenant can only operate a small “beauty treatment” business, and not a mechanic service or anything else that’s significantly different;
  • the tenant is properly qualified and following the legal guidelines for the business they are running;
  • the business must be properly insured.
  • For landlords that include utility bills with in the rent, this may need to be renegotiated.

These terms can be implemented in two ways:

  • Use a tenancy agreement that permits your tenant to operate a home business and contains clauses, outlining the relevant conditions
  • Provide a supplement document [to the tenancy agreement] that permits home business and contains clauses, outlining the relevant conditions

Updating Tenancy Agreements to permit home business

Most standard tenancy agreements by default will have a clause which prohibits tenants from running any form of business at the property. For example, the [awesome] tenancy agreements available from this website contain the following:

7. Use of Property

  • 7.1 The Tenant shall only use the Property as a private dwelling house, for the use of the Tenant and Authorised Occupiers (if any).
  • 7.2 The Tenant shall not use the Property for the purposes of conducting a business.

Although, it is possible to find tenancy agreements which permit home businesses from the offset. If you use one, ensure they have sensible clauses.

In my case, my tenant is requesting to start a business midway through a tenancy, so after we have both signed the tenancy agreement which prohibits operating a home business. So to overcome this problem, a solution is to provide an additional supplementary document that sets out specific terms and conditions of running the home business (this is also commonly done with tenancy agreements that originally prohibit pets).

I do want to point out, that even if that wasn’t the case [if my tenant wanted to operate a business from the property at the start of a new tenancy], I personally wouldn’t remove the clauses from the tenancy agreement and add in new ones, permitting a home business. I prefer keeping the original clause(s) prohibiting a home business, and instead, provide the additional document.

Landlords can provide “additional documents” to permit tenants to do something which is normally forbidden (e.g. run a home business, allow pets etc) – and they can be used either at the beginning of a tenancy, or during the middle of a tenancy as a supplement to the tenancy agreement (which effectively overrides the original clause(s), presuming they don’t interfere with statutory and common law).

Home Business Agreement Template

If you want to take a look at the agreement I used to grant my tenant permission to run a home business, which sets out the specific terms, you can fill in the form below and download a free copy.

Important: this is NOT a replacement for a tenancy agreement, it is a supplement.

Download your Home Business Agreement Template

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