Mum/dad-preneurs, social media influencers, eBay stores, Airbnb hosts and consulting — the way people are earning money is evolving. And while it’s a pretty straightforward matter when a property owner wants to operate a “side hustle” from home, it isn’t so simple when a tenant wants to run a business from their rental.
Not only would operating a business from a rental be likely to breach the tenancy agreement (using the property for business purposes and not purely as a residence), it is also likely to have an impact on the landlord’s insurance cover.
Running a business from a rented home greatly increases risks, opening up the landlord’s exposure to loss or damage and even liability claims. This is the reason many insurance policies exclude cover for properties that house a business.
So if a tenant’s side hustle could jeopardise the landlord’s insurance cover, should a landlord consider allowing a business to operate from their rental?
It’s not a decision to be taken lightly — there are plenty of considerations and a need for a comprehensive due diligence. If your landlord is considering giving a tenant permission to operate a home-based business, here are 10 questions to ask when it comes to insurance:
1. Does the council permit businesses to operate from residential premises?
2. Will the predominant use of the property remain as a residence or is a commercial lease necessary?
3. Does the tenant have all the relevant licences and registrations required by law to operate their business?
4. If there is a mortgage over the property, does the bank prohibit a business being conducted on the premises?
5. If the property is governed by a body corporate, is operating a business from an apartment/unit permitted? The strata insurance may not permit this.
6. What type of business is the tenant planning on operating and what risks does this type of business pose? For example, will clients and/or suppliers be visiting the premises? Will stock be stored on-site? Is any kind of activity with increased risks, like fire or flooding, taking place?
7. Does the tenant have their own public liability insurance, especially if customers, clients and suppliers visit the premises?
8. Does the tenant have all applicable insurances for running a business?
9. Is the tenant aware that the landlord’s insurance cover does not extend to their business operation?
10. If permitted, has the rental agreement been amended with a special condition specifying that any insurances associated with the business operation are the responsibility of the tenant, that they agree to ensure the insurance remains current and that the landlord assumes no responsibility for risks associated with the running of the business?
Of course, if a landlord does agree to allow a tenant to operate a business from their residential investment property, the most important question to ask is whether the landlord’s insurer will continue to provide cover.
Allowing a tenant to operate may void an existing landlord insurance policy (there is usually a clause that prohibits the residential premises being used for commercial purposes), but the insurer may be able to offer the landlord other options.
The insurer can advise whether they will extend cover and under what conditions, the type of policy and excesses that are applicable, the conditions for extending cover and the premium payable to cover the risks.
Sharon Fox-Slater is the Managing Director of EBM RentCover, which protects more than 150,000 rental properties across Australia. She commenced a role with EBM back in 1993 and was part of the core team that helped launch one of Australia’s first landlord insurance policies into the market. She was also the first woman in Australia to complete the Advanced Diploma in Insurance Broking, and is well equipped to educate property investors and property professionals about the value of aligning with a specialist landlord insurance provider.