Before 2015 there was a grey area for those who rented residential accommodation but carried out some form of working from home, whether that’s a full-time business in a spare office or workshop, some form of ongoing work tasks like book-writing, or even office workers sometimes being based at home.
With fast-paced technology like superfast broadband and internet provision, and flexible working practices, this has been on the up, and in actual fact something the government is wanting to encourage in order to strengthen the economy.
However this caused an issue with property leases that are residential focused, particularly the way in which you treat them at the lease end and any renewal rights of the tenant. Whilst the intention was residential protection, there were scenarios where business tenancy rights could be triggered instead from this working-at-home element. More specifically, rights through the Landlord & Tenant Act 1954 and issues such as the landlord needing longer time periods and compensation for tenants vacating at the end.
So What’s Changed?
The Small Business, Enterprise and Employment Act 2015 made an amendment to the main Landlord & Tenant Act 1954 to exclude such ‘Home Business Tenancies’ defined as ‘a business of a kind that might reasonably be carried on at home’. So landlords can be safe in knowing that home working can be encouraged without bringing in these business tenancy rights, and treat them under the usual residential principles.
Before then, the only way to resist these rights occurring was a specific clause in the lease saying that no working from home was permitted. The issue though was that this caused a black and white restriction from landlords against this, and then when this was being breached they had to take action and stop so as not to consent to this breach and trigger these rights.
From the 1st October 2015 these are now clearly excluded, with or without any clause in the lease, and irrespective of the landlord’s response to any such occupation. People can use homes for working in the safety of landlords knowing that only residential tenancy rights exist.
3 Consequences to These Home Business Tenancies
However here are three aspects of this to be aware of.
1. It Does Not Apply Retrospectively
So this only applies for leases granted after the 1st October 2015, therefore leases before then are under the old system and hinge on there being an appropriate restriction clause. One alternative, particularly for a lease that is extended anyway, is to agree a new lease that will automatically include this, and so benefit both the landlord and tenant on where they stand with the matter.
2. Remember Other Interests
So, with this only focusing on the landlord and tenant situation through the lease, there are other property interests to consider in scenarios where a home is being used for business purposes. This includes insurers and mortgage interest, other superior landlords and management companies, and compliance issues such as through fire safety and health and safety.
3. Mixed Use Properties Get Complicated
So as soon as you begin mixing things up, whether that’s different multi-let areas at a property, or this actual business use is on and off at a property, you need to tread carefully.
If a whole property is under one lease, say, a terraced retail shop, then some floors may be commercial and some residential.
One rule of thumb is that if the whole property is initially residential then it can slip into commercial rights (and in actual fact go back again to residential), but this does not apply vice versa and a commercial lease going to residential rights. At this stage things get complicated and you need special advice
A Win-Win Situation
This is good news all round really, with a landlord having the security of knowing that the primary residential purpose will prevail when it comes to tenancy rights, and a tenant being able to get on with life and work from home.
So as long as you watch the detail, including any older leases still under the old regime, and you don’t forget all the other property interests and issues, then this should work out for the best.