A potential tenant has asked me what my policy is about a home-based business operated from a rental unit. Is that something that’s usually allowed?

First check your state statutes and local ordinances to see if home-based businesses are addressed by statute or codes. Whether you should allow a tenant to operate a home-based business from your rental unit may also depend upon the type of business and the business practices involved. Some cities or jurisdictions may have ordinances that regulate certain types of home-based businesses operated from a residential property such as child care services.

Many standard leases utilize a lease clause that restricts the use of the premises by the tenant to residential purposes only. A business run from a residential property could be treated as a commercial operation and subject to requirements and limitations under applicable laws. How that would affect the landlord’s business would need to be determined regarding possible issues related to business licensure, inspections, insurance, taxes, and liabilities.

Operating a home-based business from a rental unit could be a potential violation of local zoning codes or other city codes. A landlord would need to check with local offices to determine compliance standards or restrictions on such use of the property. Zoning laws often address issues of the type of business, the size of business, business signage, the amount of traffic that may be generated, the availability of vehicle parking, the number of employees, and any unique requirements of the business.

A landlord should check with his insurance provider regarding current coverages and determine if there are restrictions or prohibitions against a tenant home-based business operating from the rental property. The landlord may need to purchase special coverage for potential liability for the tenant’s employees, guests, or customers that visit the rental property. Additionally the landlord may want to require the tenant to purchase his own special business liability insurance coverage to protect against potential liability if a client, customer, or employee was injured on the rental property.

Landlords must also take into consideration the duty of care to protect the current tenants’ rights to quiet enjoyment of the rental property, and protect against nuisance and negligent acts of others that come onto the property.

Parking issues could become a problem if your property doesn’t have the necessary extra parking and there’s not adequate street parking available.

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