In these mobile and connected times more and more people chose to work from home. It can vary from the self-employed running small internet businesses or cottage industries to flexible working patterns by employers allowing their employees to work at home one or two days a week.
But what are the legal issues landlords and tenants need to be aware of when considering these arrangements?
- Breach of tenancy. Most standard ASTs will have a clause prohibiting business use and/or a requirement that the property is used exclusively for domestic use. Therefore, a tenant using the property for a business will be in breach of the agreement which would allow the landlord to take proceedings for possession under s.8 of the Housing Act 1988. Tenants need to negotiate an amendment to the tenancy agreement to avoid this risk if they want to use the property for business purposes.
- Council tax and business rates. If part of a property is used for business purposes that part may become liable for business rates rather than council tax. Each case is judged on its own facts and will depend on the extent and frequency of the business use, modifications to the property and whether parts are used exclusively for business rather than domestic use. There is useful guidance on this issue from the valuation office: http://www.voa.gov.uk/corporate/Publications/workingFromHome.html
- Insurance. Domestic insurance policies will usually exclude business use. The landlord and tenant will therefore need to arrange appropriate insurance on the property for the type of business concerned.
- Mortgage conditions. Use of the property for anything other than a private dwelling may be prohibited by the mortgage terms and conditions. Specific agreement from the mortgage lender will be necessary where part of the property is being used as a business.
- Landlord and Tenant Act 1954. This act gives the legal right for tenants to renew a business lease at the end of the term even if the landlord objects want the property back. Therefore, care needs to be taken because the act applies to “any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of the business carried on by him or for those and other purposes.” Therefore, you could have a situation where someone rents a property with a separate studio from which they carry on a business and that could fall within the protection fo the Act.
- Leasehold Property. If the property is a flat it will almost always be held on a long lease. Most leases prohibit use for anything other than residential occupation so it is likely to be a breach of the lease covenants to allow a tenant to use the property for business purposes and could lead to a claim for forfeiture by the freehold owner.
- Planning permission. Change of use permission may be required if a business is run from the property. It will depend entirely on the type of business being run and there is some useful guidance on the DCLG Planning portal website: http://www.planningportal.gov.uk/permission/commonprojects/workingfromhome/
There can be serious implications if landlords find themselves without insurance or in breach of their mortgage or lease conditions. It’s, therefore, very important for landlords not to turn a blind eye to tenants who may want to work from home or run a small business from a rental property.