Is it possible to run a home-based business from a rental property? What are the risks for the landlord? And what are the obligations for the tenant?
In Australia there are nearly one million people running a home based business, but when it comes to running one from a rental property there are important factors to consider.
Can a tenant run a home-based business from a rental property?
A residential tenancy agreement is by definition “an agreement under which a person grants to another person for value a right of occupation of residential premises for the purpose of use as a residence.”
Saying this, tenants may run a home-based business, but they need the approval of the landlord and the predominant purpose must be use as residence. In addition, there are special conditions tenants must comply with.
Requirements to run a home-based business
Some of the requirements for the tenant are:
- Home based business insurance
- Council approval and licensing requirements
- Home based business tax
Home based business insurance
The existing home insurance of the property may not cover the business activities or clients of the tenant in the event of an accident or illness. Standard homeowner policies do not generally provide cover for home based business activities.
The tenants need to obtain sufficient insurance policies to be fully covered and avoid risks:
- public liability: to cover persons visiting the business at home (e.g. customers and suppliers). Highly recommended for all businesses. A protection against the very expensive risk of being found liable for negligence.
- asset insurance: to protect computer equipment, inventory, tools, etc.
- professional indemnity insurance: a variety of insurance products that help cover the cost of litigation. Specially recommended if the tenant works in a service industry.
The landlord should check the current insurance certificate of the tenant running a home-based business from the rental property. It is also a good idea to revise it again at every lease renewal. A special condition may be included in the tenancy agreement specifying that the insurance remains current and the landlord assumes no responsibility for risks associated to the running of the business.
Council approval and licensing requirements
Home based businesses need to comply with council approval, licensing requirements and permits from Ku-ring-gai Council or whichever local council is relevant to the location of the rental property.
The impact of the business activities on the residential area can require special permission. Depending on the type of the home-based business, the tenant may need special permits relating to car parking, noise levels or waste management.
Home based business tax
There are certain tax obligations the tenant must comply with when running a home-based business. They also may be eligible for a deduction on some expenses, like a portion of the sum they pay to rent the property. For more information visit the ATO website.
So, while it is certainly possible to run a business from a rental home, or even work from a rental home, it pays for tenants and landlords to do their own research and check that they have met any requirements.
If you have any concerns, contact Chadwick’s property management team for more information.