Working from home is all the rage. If a tenant wishes to work from home that may or may not come to the landlords attention. What if working from home means selling used auto parts that are inventoried in the garage? A home business operating from your rental should get your attention. Here are some of the reasons why.
Working From Home Versus Running A Home Business
In the world today, excluding applicants who “work from home” will significantly narrow the pool of eligibility. The issue is where to draw the line? What is the difference between a Mary Kay sales rep and an Ebay shipping business? This is tough as both involve inventory and people potentially visiting the rental property in the course of business.
Specifically, your lease should state the rental property is to only be used for residential purposes. That language creates a pretty distinct legal line. Ideally it can be used to stop the activity or terminate their tenancy.
What if the tenant is a great tenant with clean credit, pays rent early, and never seems to need maintenance? But…they violate the “residential purposes” clause and run a home based business?
What To Do With A Great Tenant And Their Home Business ?
The first step is to understand the way an applicant earns a living. Identify if making their living might require the use of your rental home. If so, an amendment to the lease should be created that states boundaries about what can and can’t be done on the property.
Some tenants will start a side businesses. Or they will have a side business that they do not disclose in their application. The legality of such a business should be your first concern. Performing regular inspections and maintenance appointments will turn over the clues that the “residential purposes” clause is being violated.
If you wish your tenant to stay, an amendment must be added to the lease. Commerce being conducted in your property without guidelines will eventually lead to major problems.
A Lease Amendment For The Home Business
The lease amendment should address:
- Liability. The owner has no liability as to loss or business interruption based on events that occur with the home (such as a flooded basement).
- Hours when business is conducted.
- The tenant having proper business insurance. The rental owner must be named as an additional insured for the liability portion of the business insurance.
Yellow Lights For Home Business In Your Rental
Use caution when creating an amendment that will permit any business where customers will come and go from the home. This traffic can create problems with neighbors and homeowners associations. It also will increase the liability risk to the owner. Generally, any type of manufacturing should be prohibited. Of course, illegal activities should already be excluded by the crime-free provisions of your lease.
One of the most common business requests is to allow babysitting/day care services. This is almost always a bad idea. You should think long and hard before approving this business activity. The liability is just too significant.
It is always a good idea to check with your insurance agent. Be sure you are personally covered based on the operation of any home business from your rental.
As a business owner, I am all for the pursuit of entrepreneurship. As a rental owner, I recognize the risk a home business presents to my property. Particularly a property that should be restricted to residential purposes only. Use caution if a tenant wishes to utilize your property for their business. Gain an understanding of the business, how it operates, and the risks it presents. Then be prepared to offer an amendment to the lease, or move on to another tenant or applicant.