What do I do if my tenant has set up a business in my property?

If you ran detailed tenant checks before signing the tenancy agreement, you’ll know what your tenant does for a living. However, their job and circumstances might change.

Attitudes to home working are changing, and the number of home workers is growing. The Office for National Statistics (ONS) estimates that 13.9% of the UK workforce is now home-based – the highest level on record.

As a landlord, you will at some point encounter a tenant who works from home. You might take on a tenant who is already a home worker, or your tenant might become a home worker during their tenancy. In either case, you will want to know what this means for you.

Is working from home the same as running a business?

Working from home is different to running a business from home. Generally speaking, working at a desk in your home with a computer and a phone doesn’t count as running a business.

Your tenant might be running a business if, for example:

  • they have stock delivered to or stored in your property;
  • staff or a workforce come and go on a regular basis (if your tenant employs a secretary, for instance); or
  • your tenant operates, mends or fixes machinery in your property

It is not illegal for a tenant to run a business from home

Neither running a business in or home-working from a rental property is illegal. Nor is permitting it, so you won’t be fined or prosecuted if your tenant runs a business from your property. But there might be other issues.

A tenant's home business may have insurance, lease, mortgage or planning consequences

A tenant running a business from your property could have one or more of the following implications:

  • It may invalidate your landlords insurance, meaning that you won’t be covered for claims.
  • In the case of leasehold properties, it might violate the terms of the head lease.
  • It might be a breach of your landlord mortgage terms.
  • There could be implications with your local council if your tenant needs planning permission.

Your tenant will probably need permission from your local council and/or planning office if:

  • your property’s main use is no longer as a home
  • trading or sales will take place in your property
  • traffic to and from your property is likely to increase
  • the operation of a home business is likely to create a disturbance

Will the law governing the tenancy change?

Many landlords worry that, by permitting the operation of a home business, they will create a business tenancy under the terms of the Landlord and Tenant Act 1954.This would give their tenant greater security of tenure, which would be problematic if the ever landlord wished to seek possession.

If your tenant is only working from home and not running a business, the tenancy will not change. If the tenant needs planning permission for any of the reasons listed above, a business tenancy may arise.

The government addressed this concern with the Small Business, Enterprise and Employment Act 2015. Section 35 of the Act defines a new type of tenancy, a “home business tenancy”, which does not fall under LTA 1954. Provided that the tenant continues to occupy the property as a home, the tenancy will remain under the Housing Act 1988.

What should the landlord do if they discover their tenant is running a business from home?

Thanks to SBEEA 2015, private tenants can run businesses and work from home without altering the terms of their tenancies. But there are still matters other than legal implications to consider.

If you find out that your tenant has set up a home business, check the terms of your insurance policy, mortgage and, in the case of a leasehold property, lease, to make sure that they permit your tenant to run a home business. You should also contact your local council.

For the avoidance of doubt, you may wish to include in your tenancy agreement  a clause similar to the following:

"The Tenant must not use the Property for the purposes of a business, trade or profession except with the prior written consent of the Landlord, which must not be unreasonably withheld or delayed."

The clause should not forbid running a home business outright. Under Office of Fair Trading (OFT) guidance, this might be considered an unfair term, which a court could not enforce. (The OFT was dissolved in 2014, but the Competition and Markets Authority (CMA) has since adopted much of their guidance.)

When can a landlord 'reasonably' withhold permission for a tenant to run a home business?

If your tenant requests permission to run a home business before the tenancy begins, you can include permission in the terms of the tenancy. If they request permission during the tenancy, you should respond promptly and only withhold permission if it is reasonable to do so.

If the business would cause a nuisance to neighbours or substantially increase wear and tear to the property, you could reasonably withhold permission. You could also withhold permission if the proposed use would give rise to a ‘business tenancy’.

As discussed above, many home businesses now fall under the terms of SBEEA 2015, circumventing the issue of business tenancies. Businesses such as copywriting, proofreading or translation services, consultancies or any other businesses a tenant could reasonably run from home are all permitted.

Tenants should be able to work from home in many circumstances

In most cases, your tenant should be able to run a low-impact, office- or studio-based business from your property without causing problems.

Always bear in mind the difference between home business and home working. Modern business practice allows many workers to work from home, and this should not require your permission.

More and more people are running their own businesses, and if you can provide not only a home but a workplace for your tenants, it will help to foster a good professional relationship.

This information should not be interpreted as financial advice. Buy to let mortgage rates are subject to change. Speak to our advisors for a mortgage illustration.