The Landlord and Tenant Act 1954 Part II provides security of tenure to tenants of premises occupied for business purposes, or mixed residential and business purposes.
Under the provisions of the ’54 Act, it is possible for a lease or tenancy of a property, which is used for both residential and business purposes, to be a business tenancy giving security of tenure. This means that residential tenants working from home could inadvertently be given rights to remain in the premises. This is particularly the risk where no written agreement exists or when it is deficient in some way.
This has long been a concern when letting under the Housing Act 1988 assured shorthold tenancy (AST) when the tenant works from home. Whilst most landlords and tenants are unaware of this anomaly, it is nevertheless a concern.
However, this has been recognised by Government in The Small Business Enterprise and Employment Act 2015 which received Royal Assent on 26 March 2015. The Act consists of a raft of measures aimed at making the UK a good place to start and grow a business.
All good residential tenancy agreements have hitherto prohibited the use of domestic dwellings for business purposes to avoid any potential argument about whether the tenancy is protected by the security of tenure provisions in the 1954 Act.
But, where the landlord knows that a business is being conducted from the premises, it well might be argued that continuation of such practice has been condoned and agreed.
The intention of the 2015 Act therefore is to remove the incentive for landlords to include a prohibition by providing that a tenancy of a dwelling house where a “home business” is carried on will not fall within part II of the 1954 Act.
This is to be known as a “home business tenancy” which will permit a “business of a kind which can reasonably be carried on at home”, but “no other type of business”.
The Act therefore is designed to encourage businesses by giving “greater flexibility around home working” and more options in terms of where the business is carried on and where partners and employees can be based.
What is a home business tenancy?
The Small Business, Enterprise and Employment Act 2015 (SBEE) defines it as when:
- a dwelling-house is let as a separate dwelling;
- the tenant is an individual; and
- the terms of the tenancy require:
- the tenant to occupy the dwelling-house as a home;
- permit a home business to be carried on in the dwelling house, or permit the immediate landlord to give consent for a home business to be carried on in the dwelling house; and
- do not permit a business other than a home business to be carried on in the dwelling-house.
The Act defines a home as: “any business of a kind which might reasonably be carried on at home”.
Certain specific businesses are excluded, for example, the supply of alcohol, and further regulations are to follow on this.
Until these regulations are finalised and passed by the Secretary of State, expected by April 2016, a degree of uncertainty over this exists for both landlords and tenants as there are many situations where this is unclear. For example:
- The tenant works full time but brings work home regularly
- The employed tenant regularly spends part of the working week working from home
- The tenant is a sole trader making small products at home and sells
- An employed tenant runs an eBay business from home storing the products in the dwelling
- An employed tenant runs an eBay business from home but storing the products elsewhere.
- A self-employed mobile hairdresser also has clients come to the dwelling.
- A self-employed chiropodist has clients come to the dwelling.
- A full time employed tenant run a consultancy business on the side, uses the home address for his company’s registered office.
There is much ambiguity here that still needs clarification and it is not clear whether a lease of a flat will be included in the provisions.
It remains to be seen just how many landlords permit their tenants to run home businesses, so caution is recommended here.
The 1954 Act has provisions for “contracting out of the Act” in the case of all business tenancies, a procedure where the tenant and landlord agree before the lease is signed that the tenancy will be contractual and the provisions of the Act will not apply.
If there is any doubt, landlords are at this time recommended to seek a contracting out agreement and you should seek legal advice before letting if you are unsure.
Small Business, Enterprise and Employment Act 2015 here