The New Law on Home Business Tenancies: What you Need to Know
Published on April 2, 2016 by Sarah Mac
Part 2 of the Landlord and Tenant Act 1954 gives security of tenure on certain business tenancies. It gives a tenant the right to renew the tenancy when its term is up. The business circumstances can include home businesses, so that a landlord is unable to terminate a mixed residential and home business tenancy. To avoid a potential tenant for life situation, many landlords have refused to agree to their residential properties being used for home business purposes.
However, as of 1 October 2015, this was changed by the Small Business, Enterprise and Employment Act 2015 which exempts most home businesses from this security.
How Does this Affect Landlords?
If you are a landlord in England or Wales, this means that whether you and your tenants have signed a Home Business Tenancy Agreement or a residential agreement with your written consent to operate a recognised home business, you are not under a legal obligation to renew their lease at the end of the term specified in the agreement. Provided the agreement was signed after October 1st 2015 and the business can be categorised as a home business, there is no security of occupancy for your tenants beyond the term of the agreement.
If in the past you have been advised that it is safer not to agree to a tenant using your premises for a home business, this no longer applies. It may allow you to have even better relationships with your tenants, and gives them the potential for more flexibility in how they use their current home and how they can earn the income needed to pay the rent.
What Can Be Defined as a Home Business?
The Act maintains that a home business is “a business of a kind which might reasonably be carried on at home”. The category does not include a business which deals in the sale of alcohol so, for example, a rented public house where the licensee lives upstairs is not exempted from security of tenure. The definition is currently no clearer than this, but the government may add other examples of what cannot be classed as a home business in the future.
For the purposes of the Act, The “home” must be a rented property for which the terms are for the tenant to be resident there, but is also permitted to run a home business there. It does not include any adjoining land which might be used to house a business.
How to Avoid Related Problems?
Landlords should review their tenancy agreements carefully before deciding how to respond to requests to allow home businesses in their properties. As long as you are confident that the type of operation would qualify as a home business, and the agreements were signed on or after 1 October 2015, you can give permission without fear of not being able to terminate the tenancy once the contractual time has passed. Again, if the home business qualifies, the problem of security of occupation should not deter you from future Home Business Tenancy Agreements.