Residential Tenancies Can Now permit Home Business Use

Since 1 October 2015 it has been possible to grant a new type of Assured Shorthold Tenancy (AST) – a Home Business Tenancy (HBT). We have added a selection of Home Business Tenancy Agreements to our Property portfolio. So what is a Home Business Tenancy and why has this new category of tenancy been introduced?

What is a Home Business Tenancy?

A Home Business Tenancy is essentially an AST where the tenant is given permission to carry on a home business from the property. The permission can either be blanket (allowing any home business use) or subject to the landlord’s consent for the particular use. No other kind of business use can be permitted.

The Landlord and Tenant Act 1954 has been amended to confirm that such tenancies will not be “business tenancies” and will not therefore attract security of tenure under the 1954 Act. Instead, they will be governed by the legislation applying to residential tenancies.

What is a Home Business?

A home business is defined in the legislation as “a business of a kind which might reasonably be carried on at home”. Businesses involving the sale of alcohol for consumption at the residential premises are excluded from the definition. The government may also make regulations specifying other exclusions.

Clearly, this definition leaves room for debate as to what types of business use fall within it. It would presumably cover, for example, an IT consultant or freelance editor working from home. It is unlikely to cover a manufacturing business that operates noisy machinery. Between these ends of the spectrum there is a considerable grey area and we may ultimately need the court to rule on what is, and is not, a home business.

Why do we need Home Business Tenancies?

Until now, landlords have been unwilling to allow tenants to use their properties for business purposes. This is because there was a risk that the tenancy would be classed as a business tenancy under the Landlord and Tenant Act 1954, and thus would qualify for security of tenure under that Act.

The government recognised that many tenants have in fact been operating businesses from their rented home without the landlord’s consent. By introducing the concept of the Home Business Tenancy, the government aims to facilitate the operation of home businesses and remove the incentive for landlords to prohibit all business use.

New template documents

Template Home Business Tenancy Agreements are available for a variety of different types of premises, including houses, flats and bedsits. They are in a similar format to our Assured Shorthold Tenancy Agreements but they include provisions allowing the tenant to carry on a home business.