Home businesses are all the rage. But, with 13.7% of the UK’s workforce now working from their own place, it can be difficult to tell which business ventures are legal and which aren’t. For landlords, this can cause major friction. How do you know whether your tenants’ activity will impact on your own working life? While the majority of home workers will have legitimate reasons for staying out of the office, it’s always worth knowing where you stand in the eyes of the law.
When Does Residential Use Become Business Use?
Freelancers and small businesses tend to operate from their own front rooms because renting auxiliary office space can prove expensive. Unfortunately, the difference between what constitutes residential tenancy and what constitutes commercial tenancy is often a legal grey area.
What’s clear is that a tenant must declare themselves as one or the other. Renting a residential property for business purposes is prohibited by the Housing Act 1988, while living in a commercial property is outlawed by The Landlord and Tenant Act 1954. But where do you draw the line?
Even regular nine-to-fivers will need to bring work home on occasion, with working practices changing constantly. Banning all home-working tenants from your property will pointlessly alienate a significant proportion of potential occupants. Instead, you need to determine the property’s main use. If your tenants are working in the spare room sporadically, then the property can still be considered residential. The work carried out by these tenants is not disturbing other residents and is therefore perfectly legal.
How About Freelancers And Remote Workers?
In most cases, renting to a freelancer won’t result in a government investigation. Sole traders who work remotely from their front room aren’t usually drawing large amounts of commercial traffic to a premises. Whether they are self-employed or working for a company located elsewhere in the world, the impact on your property will be negligible.
Problems only occur when a business begins to expand or change its nature in some way. For example, a freelance hairdressing business may result in more traffic to and from the property. In this scenario, it’s a good idea to seek legal advice and consult a small business accountant on the potential ramifications.
Under the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015), home-business tenancies are now legal, as long as the tenant is still using the property for residential purposes. By addressing these concerns, the government has made it much easier for freelancers to live and work in rented premises. However, it is still important to know the difference between a home business and a major commercial enterprise — especially if it affects your landlord insurance policy or mortgage.
How Can I Ensure I Am Legally Covered?
An Assured Tenancy Agreement should always include a work-related clause. For the majority of landlords, this simply states that commercial use is prohibited in their property unless specific permission is given. Since you don’t have the right to forbid home working, you should clearly outline that tenants are not to receive paying guests or carry out any business, profession or trade, without prior consent. You can then decide whether you are in a legal position to reasonably withhold permission on a case-by-case basis.
Again, this becomes somewhat of a judgement call on your part. As a general rule of thumb, commercial use that doesn’t require further planning permission will hold up under SBEEA 2015. A freelance writer wouldn’t significantly increase the energy use or traffic in the building, whereas an eCommerce business might require the delivery and storage of stock. Once planning permission is required, the tenant’s work should be considered commercial.
Planning permission is usually needed when:
- The property’s use becomes predominantly more commercial than residential
- The occupant begins to trade with the public directly from the property
- Traffic in and around the building causes problems for other residents
- Dust or odours are caused by traffic or machinery
In accordance with your Assured Tenancy Agreement, this activity would now be deemed illegal. In circumstances where this agreement is broken, the tenant becomes fully liable for the offence, especially if they haven’t been paying the obligatory business rates. However, the authorities’ first port of call will be the landlord, which means you need to be able to prove that you aren’t involved in any wrongdoing. In order to cover all bases, it’s worth talking to both your tenant and a small business accountant about the nature of their business before you agree to let out your property to them.
Article Courtesy of: Chris Weston is the director of Aston Black, a small business accountancy firm in Milton Keynes. Chris has over 25 years of experience in accounting and business, working with his small team of staff to provide quality advice for companies and freelancers up and down the country.