The Small Business, Enterprise & Employment Act 2015 (SBEEA 2015) received Royal Assent in March 2015, with various provisions coming into force over the course of the following months. The thrust of the SBEEA 2015 was to reduce regulation in a wide range of disciplines from finance and company law to education and childcare.
On 1 October 2015, provisions relating to home business tenancies (HBTs) came into force. This note is a reminder for landlords and tenants, both prospective and current, as to how you can establish an HBT.
HBTs were created in an effort to make it easier for people to carry on a small trade or business from their rented home. Previously, landlords would have been rightly concerned about a tenant gaining ‘security of tenure’ by running a business from their home. Under the Landlord & Tenant Act 1954 (LTA 1954), tenants running a business from their premises may have a right to automatic lease renewal if they satisfy certain criteria. The criteria are, broadly speaking:
- there is a tenancy of property
- the tenant occupies the property
- the tenant carries out a business from that property.
Despite many Assured Shorthold Tenancies (ASTs) containing strict user clauses to occupy the property as a home only, a tenant could still acquire security of tenure under the LTA 1954. If the tenant does acquire that right, the landlord can only object to any lease renewal on grounds set out in the LTA 1954. Court proceedings under the LTA 1954 are more complex than residential possession proceedings under the Housing Act 1988 and could leave the landlord stuck with a business tenancy on what should be a buy to let property that were entirely unintended.
The provisions in the SBEEA 2015 in relation to HBTs are therefore useful in protecting both parties from complications arising out of running a small business from residential property. To be an HBT, the SBEEA 2015 sets out the following criteria:
- the house must be let as a separate dwelling to one or more individuals
- one or more of those tenants must occupy the house as their home
- the terms of the tenancy must permit a home business, but only a home business, to be carried on from the premises.
A 'home business’ is defined in the SBEEA 2015 as being a business that can reasonably be carried on at home, excluding any business which involves the selling or consumption of alcohol. Although the government has promised a list of businesses that can be deemed as ‘home businesses’, we are yet to see one. This means that for now the issue will be one to be determined by a court. It seems likely that if the business can be carried out without making alterations to the property (e.g. someone running a home office from a spare room) then that will probably fall within the definition. As tenant alterations (and certainly ones involving building works) are usually prohibited in an AST, it might be harder to justify that someone converting an outbuilding into a workshop meets the same criteria of being a home business.
Nonetheless it is therefore possible to have an AST agreement tailored to tenants who intend to use the premises as their home and their home business.