The rise of the 'armchair entrepreneur?' - Business Leases and Residential Tenancies

There are currently a reported 2.9 million home businesses in the UK which are making an increasingly important contribution to the economy. The Government has been keen to encourage the rise in the 'armchair entrepreneur' and so the continuing popularity of the home business shows no sign of abating.

However, there has always been a level of unease with home businesses when the homes the business is being run from is rented.

The problem stems from the legislation that governs business tenancies, the Landlord and Tenant Act 1954. Put simply, a business tenant who falls under the protection of the 1954 Act enjoys a really quite substantial level of security and obtaining possession from a protected business tenant can be an uphill struggle - and is far from guaranteed. Landlords can avoid the difficulties by 'contracting out' of the 1954 Act and ensuring that the tenants are not protected business tenants. The difficulty however, is with 'inadvertent' business tenancies, where landlords miss the opportunity to rely upon the contracting out provisions and find themselves with protected business tenants without this ever being the landlord's intention.

There have always been rules regarding the interplay between business tenancies and residential accommodation. Historically, the Courts have looked at the main purpose of the occupation which has often involved an examination of how the property has been used, how much of it is used for business purposes etc. It would be difficult for a residential tenant to claim enhanced protection as a business tenant; but not impossible. This level of uncertainty has therefore led landlords over the years to take a robust line regarding the operation of businesses in their homes. The slightest hint of a tenant running a business could well lead to the landlord serving notice and seeking possession.

To try and encourage tenants to start-up their own small businesses from home, the Small Business Enterprise and Employment Act 2015 has sought to offer some clarification. s 35(4) inserts a new provision into the Landlord and Tenant Act 1954, specifically stating that a 'home business' will not automatically attract protection as a business tenancy under the 1954 Act. A 'home business' is described as the type of business than can be operated from a home.

It will be interesting to see if the changes do give residential landlords any comfort. The definition of 'home business' may be a little imprecise - but it should be capable of common sense interpretation in the event of challenge. Landlords would still be advised to exercise some caution if renting to tenants who are running businesses - but the new legislation may offer some assistance.

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