Running a Business From a Rental Property

Running a Business From a Residential Property

With the pandemic-induced remote working trend here to stay, more and more Brits are looking to work and run their business from home. But if the house is a rental property, is it legal for a tenant to run a business from it?

The short answer is yes, but some stipulations to adhere to and steps to follow. A snapshot of the process is:

  • Get written permission from the landlord
  • Draw up an agreement with your landlord
  • Determine how business-related costs will be paid
  • Take the payment of business rates into account if applicable
  • Put some home-based business insurance in place

Is it legal to run a business from a residential property?

Firstly, consider the legalities around running a business from a residential property, owned or leased. 

Ultimately, the answer is yes. It is legal to run a business from a residential property, but some guidelines must be followed. For starters, the property must remain primarily residential, meaning that a maximum of 40% of it can be used for business purposes. 

Most home-based businesses take up one room or workshop, but it’s essential to understand where the tipping point is. 

Can a tenant run a business from a rental property?

If a tenant wishes to run their business from a rental property, they must have their landlord’s permission in writing. New regulations stipulate that a landlord cannot withhold their permission without a justifiable reason. 

On what grounds can a landlord refuse permission?

There are three primary grounds upon which a landlord can permissibly refuse permission for a tenant to run a business from their property. These are:

 Nuisance concerns

If a tenant’s proposed business venture has the likelihood of causing a nuisance to neighbour property occupants, then a landlord can refuse permission. The potential for disturbance can be in the form of noisy machinery or music, for example, a significant increase in the overall number of people visiting the area or deeming the property inhabitable. Parking can also be an issue if multiple visitors are expected to attend the business. 

Increased wear and tear

tenant is allowed to cause a reasonable amount of wear and tear to the property during their lease, and so long as a proposed home-based business will not add to that, it is not of concern. For example, many companies are run from home in an office using a computer and make no difference to the wear on the home’s condition. However, any business that would cause additional wear and tear may be denied permission. Examples include a child or pet-sitting services or any business involving the use of chemicals.

Change of mortgage

As previously mentioned, a business can only be legally run from residential premises if it takes up no more than 40% of the property. In addition, if a tenant’s proposed business venture would require a change to the mortgage details, permission can be denied by the landlord. 

Obtaining permission

To seek permission from a landlord, a tenant should provide them with a detailed proposal to include:

  • The full scope of the business model – services, operations, etc.
  • Details of any property changes required
  • Any expectations to place signs or advertisements on or near the property
  • Details regarding any commercial-use vehicles needed
  • Operating hours
  • Any expected nuisance to neighbours, such as noise
  • Any expected increase in traffic or footfall in the area, such as multiple visitors, clients, vehicles, etc. 

Negotiating the terms of the agreement

Should a landlord provisionally permit a tenant to run a home-based business, they two must come together and agree on the finer points of the proposed venture. 

Depending on the nature of the suggested business operations, a landlord may request that compromises be made. For example, these compromises could be related to operating hours, capping the number of visitors allowed at any one time, or agreeing to return the property to its former condition upon vacating it. 

Determining how additional expenses will be paid

If the proposed business is likely to increase water usage and electricity bills, this may need to be discussed and agreed upon in advance.

If a tenant pays these bills directly anyway, it may not require discussion. If, however, these expenses are included in the rent payment, new terms may need to be agreed upon.

Business rates

Owners typically don’t need to pay any business rates in addition to council tax, but it’s essential to be sure either way. Examples of the need to pay business rates could include hosting employees at the property or altering it to accommodate the business.

Home-based business insurance

Essential insurances to consider putting in place when running a business from home are:

  • Public liability insurance: if it is anticipated that people will visit the company at home.
  • Product liability insurance: if a significant amount or value of product will be handled, made, and stored at the property.
  • Professional indemnity insurance: necessary for any businesses that provide specialist skills or expertise to their clients
  • Buildings and contents insurance: especially if expensive equipment or stock will be kept at the property

Final thoughts

So long as it is legally viable and compliant with regulations, running a rental property can be straightforward. However, if there are any exceptional circumstances, they must be negotiated between tenant and landlord to reach a mutually agreeable solution. 

The British Landlords Association is a national landlords association for residential & commercial landlords. Join us today membership for the year is only £69,95!

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This post is for general use only and is not intended to offer legal, tax, or investment advice; it may be out of date, incorrect, or maybe a guest post. You are required to seek legal advice from a solicitor before acting on anything written hereinabove.

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