Business use of rented residential property
Should you prohibit tenants running a business from your property? The law has changed recently here, but still, the real answer is that it depends.
What type of business use?
First, there has never been a problem with home working, for example, a teacher marking homework.
Then you need to consider whether it really is a business use or not. For example, if Mrs A makes patchwork handbags and sells them from time to time on ebay, this is really more of a hobby. It is not the place of a landlord to forbid a tenant having a hobby, indeed it is none of his concern.
However, if Mrs A’s main income comes from the patchwork handbags, then this is a business use. But should it be allowed?
The answer now is ‘yes’ but only if the business use will not cause a nuisance or change your tenancy into a business tenancy. This is because of a change in the law – sections 35 and 36 of the Small Business Enterprise and Employment Act 2015 which established the new concept of a ‘home business tenancy’.
These will be businesses which don’t cause any impact, such as an internet business or a financial consultancy. Or as the act now states
A “home business” is a business of a kind which might reasonably be carried on at home.
(Although not if it involves the sale alcohol).
The new user clauses
So now your prohibition clause should provide for tenants to ask permission which should not be unreasonably refused. Reasonable reasons will that the proposed business
- will cause a nuisance
- will result in greater wear and tear on the property and/or
- that it might give rise to a business tenancy
In our example of making patchwork handbags, if Mrs A is in effect turning the property into a shop with a window display and customers constantly coming to the property to buy then this should not be allowed as it could result in the tenancy becoming a business tenancy – and could cause more wear and tear. Mrs A should be asked to rent proper business premises. Likewise, if the machinery she uses is very noisy and would cause a nuisance to neighbours.
However, if she is just making the bags quietly in a spare room and then taking them to trade fairs in her own car, that would probably be all right.
Business tenancies
The reason why you don’t want to risk tenancies converting to a business tenancy (which they will if the main use is a business one, which is not a ‘home business’) is that these are covered by different legislation. If you consent, you run the risk of that legislation applying to your letting rather than residential the legislation such as the Housing Act 1988. This could, for example, affect your ability to recover possession. There may also be planning implications.
There is nothing wrong with renting property for business use, but this should be done by way of a proper commercial lease, drafted up by a solicitor after taking proper legal advice. Otherwise, you could find yourself in difficulties.
Check your tenancies!
As this is quite a recent change, many tenancy agreements still have the old absolute prohibition of business use. However, since the 2015 act, it may now be unfair if your clause does not allow for the tenant to ask for permission to run a home business which does not negatively impact on the property. So you should check to make sure that your tenancy agreement clause now complies with the current law.
If it does not (and the tenancy started after 1 October 2015) then it may be unenforceable. Which could put you in difficulties if your tenant starts running a less desirable business, particularly during a long fixed term where you are unable to use section 21.
NB Find out more about my Tenancy Agreement Service on Landlord LawAll Landlord Law tenancy agreements contain user clauses which comply with the new law on home businesses, but which protect the landlord’s position.
Amy Kelly says
May 25, 2017 at 5:52 PMThis interesting but I am afraid I am not sure the advice is correct.
Where in the SBEE Act or indeed in the Consumer Rghts Act 2015 do you find a requirement that tenancy agreements must now have a clause where business use is permitted, subject to consent?
The purpose of the SBEE Act is to encourage private landlords to modify agreements if they want to, so residential occupiers can operate businesses from their tenanted premises, but without gaining the protection of the 1954 L&&T Act. A home business tenancy is only one where the agreement has a clause which allows business use (whether with permission or permission not required).
I do not see how you can make a quantum leap to now suggesting that a prohibition on business use is an unfair clause when there is nothing in the UCTA or CR guidance that suggests that.
Please can you explain if I am wrong.
Tessa Shepperson says
May 25, 2017 at 6:08 PMThis is the way the issue is dealt with in the government’s model tenancy agreement.
We have not had any case law on it yet, so far as I am aware, as yet so we are all just speculating. You may be right.
I tend to prefer to have the ‘request permission’ wording as gives a greater protection against the clause being found unfair and unenforceable. If you take a different view – that’s fine. It is entirely up to you how you draft the clauses for your tenancy agreement.
However, if you have an absolute prohibition there is a greater risk that the clause will be found to be unfair and unenforceable under the Unfair Terms rules in the Consumer Rights Act 2015.
I have changed ‘will’ to ‘may in the post in view of your comment though 😉