Do Your Renters Run Businesses Out Of Their Homes?

2014-11-08

Do Your Renters Run Businesses Out Of Their Homes?

There’s No Business Like Home Business When Home Business Is Your Business

A modern home office.The Small Business Administration recently pointed out that almost half of all businesses in the United States are home-based businesses. The Department of Housing and Urban Development tells us that 35.9% of Americans are renting, as of last quarter. Assuming an average distribution, that means that roughly 18% of all American rental units have a business being run out of them. Statistically, if you own just 5 rental units, there’s a good chance a business is being run from one of them.

Why is that an issue? There’s several reasons.

  • Zoning Laws: If your rental is in a mixed-use area, no problem. If it’s zoned entirely residential, the business may be illegal — and if it’s discovered, that can spell legal trouble for you as the landlord.
  • Licensing: Similarly, if a tenant of yours is running a business without a license to do so, and you know about it, it can have legal ramifications for you.
  • Liability: If your tenant’s business requires ‘customers’ to set foot on your property, you suddenly have all of the same liability issues that a real business does — only as the landlord, you are the one on the hook if an accident occurs.
  • Annoyed Neighbors: might seem like the least of your worries, but if a neighbor is bothered by all of the people coming in and out of your rental ‘business’, it can lead to them complaining to the city, which can bring any or all of the above issues into the light.

So, the first and most important question if you suspect a tenant is running a business out of your rental is this:

Will it Damage My Property & What is my Liability Exposure?
On a final note, not all from-home businesses are worth bothering over. If your tenant is making money selling his old crap on eBay, or writing websites freelance on oDesk, or otherwise not actually interacting with anyone physically in the home, then they’re probably not violating any laws or increasing your liability and you have nothing to worry about.

Is There a Relevant Clause In Your Lease?
If you’re canny, there will be a clause in your lease that specifically addresses the potential of a tenant running a business in your rental — generally, one that says “No.” Or, more specifically, “No Premises or Common Area of Property Address shall be used for any business, professional, or trade purpose, or for any purpose other than as a private residence.

If Not…
If you don’t already have such a clause, consider adding one. Then, talk to your business-running resident about a solution. This may include: getting properly licensed, applying for city required permits/registration and getting properly insured (be sure to be added as ‘additionally insured’). Even if it’s not on the lease, you can point out all of the above issues and inform them that the business isn’t allowable for those reasons. All states allow for eviction if the tenant is violating the law, so unless they can show you their business license and that they are complying with all local ordinances, you have solid grounds to evict. If not, you can always seek out complaints from the neighbors or prove that the business is causing wear and tear above and beyond the norm to your property.

Preventing This From Happening Again
To keep home businesses from cropping up in your rentals, be attentive during your tenant screening. Is their line of work conducive to business from home? How stable is their current job? Asking a probing question or two can be very revealing.

Going forward, keep in mind that a current tenant may lose their job and start a home-based business or start one at any time to supplement their income. So, you should keep alert for signs this is happening. One way is noting your tenants’ payment methods. If they suddenly switch to paying via cash, PayPal or a similar online service, investigate a little.

3 thoughts on “Do Your Renters Run Businesses Out Of Their Homes?

    1. @Jose: thanks for your inquiry. There are several possible concerns for an owner in this situation:

      1) What are your local municipality zoning rules regarding this type of business at your specific property location?
      2) What health code regulations apply?
      3) Are there any business registration and business tax concerns?
      4) What type of business inspections might be required?
      5) How likely are the neighbors to complain about extra traffic?
      6) What utilities are you paying for that would show an increase due to the business?
      7) Any extra wear & tear on your property?
      8) What happens if the business causes damages to your property — such as an overflowing sink? Who’s insurance will pay for them?
      9) What happens if a customer of the business is injured at your property?
      10) What is your potential exposure if the business owner is sued for “malpractice”? Can they also sue you?

      There are many more, but hope these helped!

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