The development of information technology, and in particular the internet, has over the years led to a blurring of the lines between the workplace and the home. People are no longer chained to their desks or restricted to bespoke commercial premises, when they can often perform their employment duties or run a business from the comfort of their own residence.

A person working from home as part of their employment by a business located elsewhere would not in itself normally constitute using a dwelling as a 'home business' but what if a residential tenant wants to actually locate and operate a business from their home address? A residential landlord should bear the following in mind before agreeing to any such proposal.

Planning Permission

Can the property actually be lawfully used as a 'home business'? If there will be a material change in the use of the building then a planning permission will be required. Such permission will not normally be required if the property remains primarily a private residence with only ancillary use as a business. However, a local planning authority is responsible for deciding whether or not planning permission is required and will decide each case on its own individual facts. Material issues for consideration will be whether the proposals will lead to an increase in traffic volume in the vicinity, disturbance to neighbours, abnormal noise or smells and the need for any external building works or alterations.

Insurance

Any change of use of the property will need to be reported to the insurer of the building. Most insurance policies for residential property will contain restrictions prohibiting the property being used other than as a private dwelling. The breach of such conditions could invalidate the policy and leave you uninsured. Any change of use should be reported to your insurer and will normally result in a change in the types of insurance policy available to you and an increase in the premiums payable.

Mortgages

If the property was purchased with mortgage finance then you should not forget that the mortgage lender made those funds available strictly subject to the conditions issued to you at the time that the mortgage was taken out. Amongst other things, those conditions will normally state that the property is only to be used as a private dwelling and that any changes to the property which required planning permission will require the prior consent of the mortgage lender. The breach of mortgage conditions can entitle the lender to terminate the loan period and seek immediate repayment of the loan, so it will be important to consult with your lender to ensure that they agree with the property being used as a 'home business'.

Security of Tenure

It is normally an important consideration for a landlord to know that they will be able to re-take possession of a property once the contractual term of a tenancy has expired. Most residential landlords nowadays let dwellings on assured shorthold tenancies, which give the comfort of a statutory guaranteed streamlined process for obtaining vacant possession if a tenant refuses to vacate once the tenancy has come to an end.

The position is different, however, for tenancies of business premises, where the law grants business tenants the protection of a statutory right to renew an expired tenancy unless the landlord can prove certain limited grounds for opposing such a renewal.

So, what is the position when a property is used as both a dwelling and as business premises? Clearly there is potential for confusion and the possibility of accidentally creating a business tenancy which grants the tenant security of tenure.

Thankfully, the position has been clarified somewhat by the Small Business, Enterprise and Employment Act 2015 which contains provisions to exclude residential properties used as 'home business' premises from the security of tenure provisions of the Landlord and Tenant Act 1954. The new provisions do not create a blanket restriction against mixed use tenancies obtaining the protection of the 1954 Act but it does specifically exclude tenancies which only involve a 'home business' use. A 'home business' is defined in a rather vague fashion as 'a business of a kind which might reasonably be carried on at home' and there is no definition of 'home' in the 2015 Act, so it may require the parameters of the Act to be tried and tested in the Courts before we get further clarification. In the meantime, it is important to note that exclusion only applies if (a) the lease provides that the property is to be occupied as a home but permits the tenant to operate a home business (or allows the landlord to consent to a home business) and (b) the lease must not permit any other sort of business other than a home business or it will fall outside of the exclusion.

There are clearly a number of important factors for a landlord to consider when deciding whether or not to permit to a tenant to run a home business. It would be prudent to consider the pros and cons before embarking upon the letting of a property and if such proposals will involve you incurring additional costs then you should budget accordingly or seek to pass those costs on to the tenant. If you wish to avoid the complications involved with a mixed use property and keep life simple, then you may prefer to specifically prohibit any form of business use and restrict the user clause in the lease to residential purposes only!

If you would like to discuss this or any other real estate commercial issue please do not hesitate to get in contact with myself or the team.