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My Tenant Wants to Run a Business From My Property

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  • My Tenant Wants to Run a Business From My Property

    The Tenant has asked my permission, in a letter, to run a "small food business" basically cooking and selling stuff using my kitchen appliances (oven, gas cooktop, exhaust hood, dishwasher, in-sink garbage disposal, etc). They have stated in the letter that they will be "responsible for any wear and tear on the property related to the business". She is a stay-home mum looking after her 2 year old while the hubby out at his day job. I'm all for tenants earning extra to help pay rent but just want to be sure there aren't any potential pitfalls that I should cover in granting them permission. How could one be compensated for the 'wear and tear' that is over and above normal domestic usage?

    Thoughts?

  • #2
    Kitchen would need to be signed off by Council as a Commercial Kitchen. Check with your Insurer to see what their take on you Tennent running a business from your IP. Guessing they'll say no or hike your premiums up massively.
    Kaye
    www.streetsaheadpm.co.nz

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    • #3
      Originally posted by zackxx View Post
      The Tenant has asked my permission, in a letter, to run a "small food business" ...

      Thoughts?
      It would have been better if your tenant didn't tell you.

      Your responsibilities as a commercial landlord are so much more than a residential one.

      If it's a really small affair, then you could refuse the permission-

      and meet with them in person - and say that while you don't approve it, you won't be making any problems should they be caught on selling their home cooking.

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      • #4
        My sister (tenant) applied to her Landlord for this same scenario. She chose to complete all the required H&S aspects first before asking the LL. She first had to register her business and have the premises inspected by Council and receive her certificate (I don't know the details of how this worked, but she got it), then she applied to the LL who approved it.

        What I don't know is if the LL spoke to their insurance company about it. There is some guidance online. I would expect it would certainly impact your insurance in some way and may void it if you did not declare it.
        If you work from home, household insurance may not be enough to cover your business. Here’s what to think about to ensure you’re protected.

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        • #5
          ^^ If the property burnt down, and the insurer hadn't approved its use as a commercial kitchen - they'd refuse to pay for the rebuild. As a LL, the risk isn't worth it. So insurer's approval is one hoop to jump through - and the premiums would rise - but you can not pass them on until 12 months have passed from the previous rent rise.

          The other consideration is the extra wear and tear on the kitchen appliances. I suppose you can up the rent - but not until 12 months have passed from the previous rent rise.

          On a side note, I wondered if insurers would get snarky at tenants' remote working. It's the new normal where part or all of the week is worked from home - not the workplace. Could insurers use it as a reason not to pay out if an accident happened?

          I did an online search - nothing much was found on the topic other than - insurers are keen to know 'who' is coming to your property - i.e. customers. For computer work, the implications are around equipment - so the tenants need to get their companies to insure the business equipment that's on the rental property or that do so under their own contents insurance.

          cheers,

          Donna






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          • #6
            I did an online search - nothing much was found on the topic other than - insurers are keen to know 'who' is coming to your property - i.e. customers
            Yes given there's not much about this topic I thought I would update this thread to inform all those who find themselves in a similar situation.

            Given forum member feedback I have emailed my rental property insurer and they have come back with the following:

            Thank you for your email query, we just need some more information before we can confirm how we’ll precede:
            • What percentage of the home is used for the business? (less or more than 50%)
            • What type of business is being run? (what type of food is being produced)
            • What security is at the property?
            • What is the fire risk?
            • Do customers visit the property? Do they have access to the entire home or only a portion of it?
            • Are there any employees working at the property?
            • Is there any business operated from a freestanding structure or detached garage?

            Once we have this information, I will forward to our underwriting team for consideration.


            The tenant says the food business will only use the oven and kitchen mainly, no other room will be affected.

            They also said they will only sell for their friends and acquaintances. Will need to clear with the tenant answers to remaining questions and update this thread on insurance company response.

            FYI the tenant has stated that they need my permission letter so they can ask council for a permit to operate. So it looks like they want to go by the book. As for having a private verbal agreement with the tenant instead of going through all the council bureaucracy I live overseas so have engaged a property manager (who, apparently, is quite useless at advising on such matters...) but it does mean everything needs to be done by the book as THEY are very liability adverse but don't seem to give a hoot what liability the LL might be up for hence my call for forum input!





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            • #7
              Originally posted by propertynewb View Post
              She chose to complete all the required H&S aspects first before asking the LL. She first had to register her business and have the premises inspected by Council and receive her certificate (I don't know the details of how this worked, but she got it), then she applied to the LL who approved it.
              Hey thanks for that guidance -good info there!

              The procedure your sister followed interests me as I would have thought the first step would be to get LL permission because if denied all prior action with council would have been a waste of time and, presumably, money?

              So this is what my tenant is intent doing now before approaching council. My permission, if granted, would have conditions attached relating to obtaining council permits first, covering any additional insurance premium costs as well as responsible for costs to repair kitchen equipment. I'm open to eating the costs related to 'wear and tear" if they are open to paying for all repairs irrespective of how they are damaged.

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              • #8
                Yeah I think my sister may have been working from home for a period before going “legit” - and she went about it backwards. I think your tenant is doing it the more practical way

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                • #9
                  Also I wonder if you are allowed to stipulate the tenant covers your rent premium increase?

                  Comment


                  • #10
                    If in doubt, consult the RTA!

                    Originally posted by RTA
                    5 Act excluded in certain cases
                    (1) This Act shall not apply in the following cases:
                    (a) where the premises are commercial premises:
                    (b) where the whole or a substantial part of the tenant’s income is derived from the use of the premises for agricultural, pastoral, horticultural, or other similar purposes:
                    My limited - one case - experience is that (b) is interpreted liberally in that "other similar purposes" can be accepted to mean income from just about anything. I.e. "processing agricultural" might be taken to mean making / selling food.

                    Being released from the nasty, Draconian measures of the RTA could be a blessing, depending on how you manage the matter.
                    Last edited by Perry; 05-08-2022, 08:25 PM.
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