Should you object to your tenant running a business?
I was a bit surprised by an announcement recently from Housing Minister Grant Shapps recently on the Communities and Local Government website. This urges social landlords to consider allowing social tenants to run businesses from their homes.
I have always taken the view that, certainly with reference to private rented property, it is not a good idea to agree to this.
If the use of a property changes to being primarily commercial use, my understanding is that it may then come under the business premises legislation rather than the Housing Act 1988. This could affect the right of the landlord to recover possession. Not something that most landlords would want, I am sure.
The point being that if you have agreed to the property being used for business use, you may not be able to prevent that use escalating to the level where the Housing Act will no longer apply.
Or can you?
Would it be possible to draft a clause which limits the commercial use to a specified level and provides that the property must always be used primarily for residential use? How effective would this be if the tenant disregarded it and escalated his commercial use, perhaps even moving out? Would the landlord be able to prevent the property coming under the business premises legislation?
What do other lawyers think?
Wasn’t there a case some years ago where a B&B was let as a house on an AST with a preclusion from business use. The tenant did run it as a B&B and in considering this the court concluded the agreed use was what mattered. Would this not be a consideration? This is much more common these days because you cannot say to tenants “you cannot answer your work mobile from home” or “you cannot log onto your work emails (web mail or blackberry)”. Therefore, at what point does the tenant do work from home?
What about a recent case I saw where the tenant ran their internet sales business from home? All goods were dispatched from a remote locations and all sales took place on line. I think some new legislation to tidy this up, not only for the social sector, would be of great help.
The danger is that the courts will see such a tenancy as a mixed use commercial and residential tenancy, such as a tenant running a pub or fast food takeaway and living on the premises with his or her family. This lease could nomally have the worst of both worlds for an unwary landlord, as it could have the business lease protection of the Landlord and Tenant Act 1954 but also be covered by the Protection from Eviction Act.
The safest way around the problem would seem to be a “contracted out” business lease, which does not have 1954 Act protection and so eviction can take place after the end of the lease period. However, I would advise any landlord to take expert advice before attempting to enter into such a lease, due to (for example) the strict statutory “health warning” requirements.
Thank you Michael, that is exactly the sort of thing I was thinking of (although I am not a commercial property lawyer, and therefore hesitate to give any advice in this area).
What is your view about the government’s advice to social landlords to permit business use?
David, I agree that in this mobile and internet connected life we have nowadays, there may be problems as you suggest. What does anyone else think?
Quite apart from the costs involved in drawing up a new (and carefully drafted) lease, the landlord will need to check that the freehold title doesn’t contain any covenants against business use. Even if any legal advice is at the expense of the tenant, there are plenty of traps for the unwary.
The Government advice doesn’t give much assistance with these sort of practical problems for landlords.