Legal implications? Running Business from Resi IP.
- Thread starter agent007
- Start date
Yes. GST. If the landlord is registered for GST then he will need to pay GST on the rent. Years ago when GST came in and my work was renting a house used as an office as well as a residence I said to the landlord there would be issues and we did a simple commercial lease. There may also be council zoning issues etc.
Insurance will be another iissue for the landlord. It will no longer be a simple residential coverage needed and you will have told your insurer it is not being used for a business so you will be left out to dry if there is a publioc libaility cliam against you by one of the customers of the business
This is something that we have had a couple of times. We had a tenant who was running his business from an IP. We checked with our insurer, who advised that this particular situation was covered by our policy as there were no clients visiting the house.
Another two times, Dad had two IPs where one tenant was having children come to the house for art lessons. When we insisted on the teacher having cover, she stopped the lessons and moved house. She was a PITA for other reasons, so good to see the back of her. She moved in with a friend, and I am sure that friend would have no idea that she is putting herself at financial risk by allowing her friend to have pupils come on to the property.
We have a tenant in one of Dad's IPs who is running a business from one room, and has clients visit. Both RTA and our insurer advise that this is okay if the tenant holds separate cover for any problems if a client is hurt. We have a copy of that separate insurance, but it does concern me that the tenant could cancel the policy at any time, and we would have no idea.
It also bothers me that a tenant could run a business that we have no idea about. I am quite sure that this happens more than most landlords or property managers are aware of, with people (for example) having children enter the premises for tutoring, piano lessons etc. (We had tenants who did this several years ago too.)
We do as much as we can to cover ourselves, but it is a bit "hit and miss" in my opinion.
Another two times, Dad had two IPs where one tenant was having children come to the house for art lessons. When we insisted on the teacher having cover, she stopped the lessons and moved house. She was a PITA for other reasons, so good to see the back of her. She moved in with a friend, and I am sure that friend would have no idea that she is putting herself at financial risk by allowing her friend to have pupils come on to the property.
We have a tenant in one of Dad's IPs who is running a business from one room, and has clients visit. Both RTA and our insurer advise that this is okay if the tenant holds separate cover for any problems if a client is hurt. We have a copy of that separate insurance, but it does concern me that the tenant could cancel the policy at any time, and we would have no idea.
It also bothers me that a tenant could run a business that we have no idea about. I am quite sure that this happens more than most landlords or property managers are aware of, with people (for example) having children enter the premises for tutoring, piano lessons etc. (We had tenants who did this several years ago too.)
We do as much as we can to cover ourselves, but it is a bit "hit and miss" in my opinion.
As has already been alluded to, there are heaps of problems with this.
1. Nothing of the sort is covered by the residential lease you have.
2. The council zoning is most likely residential only. If it's dual res/comm you'd be half dead not to know this already.
3. Financially, the Tenant won't be offering you any more rent for the imposition, so you are getting taken for a ride.
4. The Insurance company solicitors will love you, as this is a perfect "out" for them to justify rejecting any claim you make.
5. Possible extra wear and tear on both your infrastructure and consumables.
6. If it's a beauty salon, your neighbours will obviously be bombarded by the blue rinse set, which we all know are a rowdy bunch at the best of times.
7. Parking.
Council has rules against this stuff for very good reasons.
Insurance companies have rules against this stuff for very good reasons.
How did you as the Landlord find out ?? Can we presume they didn't ask you and have already started up the business and accepting customers and you are asking this post tense ??
1. Nothing of the sort is covered by the residential lease you have.
2. The council zoning is most likely residential only. If it's dual res/comm you'd be half dead not to know this already.
3. Financially, the Tenant won't be offering you any more rent for the imposition, so you are getting taken for a ride.
4. The Insurance company solicitors will love you, as this is a perfect "out" for them to justify rejecting any claim you make.
5. Possible extra wear and tear on both your infrastructure and consumables.
6. If it's a beauty salon, your neighbours will obviously be bombarded by the blue rinse set, which we all know are a rowdy bunch at the best of times.
7. Parking.
Council has rules against this stuff for very good reasons.
Insurance companies have rules against this stuff for very good reasons.
How did you as the Landlord find out ?? Can we presume they didn't ask you and have already started up the business and accepting customers and you are asking this post tense ??
I had some clients doing this - and they wanted to purchase the place off of the landlord. it was a highset box type place down in Kingston/Slacks Creek area where they were running the hair salon out of downstairs. It could convert back to a garage at any time really.
But the valuer deemed the property as commercial for CBA so the app went dead (we used another lender and booted the shop out)
Point is it can really screw you as an owner if you're trying to sell it and its now deemed commercial.
But the valuer deemed the property as commercial for CBA so the app went dead (we used another lender and booted the shop out)
Point is it can really screw you as an owner if you're trying to sell it and its now deemed commercial.
There are an awful lot of implications. Whether it's allowed by the lease, and whether insurance will cover for public liability, are two which have already been discussed. Perhaps an even bigger concern is Council zoning. Certainly in my area, if you have clients visiting your home you have to apply for permission to operate a business on site, you have to have signage indicating the presence of the business, you have to pay higher rates, and you have to demonstrate that parking and traffic etc won't affect your neighbours. You also have to have the business licenced under the Office for Fair Trading. It's a major PITA.
As a tenant, it'd be extremely uncool to operate a business on the property without asking the owner's permission, and an owner would be crazy to give such permission, so I'd abandon the idea.
As a tenant, it'd be extremely uncool to operate a business on the property without asking the owner's permission, and an owner would be crazy to give such permission, so I'd abandon the idea.
Thank you all for your input.
I found that running any business from the property will invalidate not just the landlord but, also the building insurance policies.
Fortunatelly, the tenant is not running the business yet. They were just requesting permission through the PM to me.
Thank you all!
Is the above information sourced from your insurer, or if not, where did you get the information from? I am curious because I was on hold with our insurer when I read this, so thought I would double check what we were told last year.
When the staffer came back on the phone from talking to the underwriters regarding another issue, I asked her to confirm our understanding that the insurance is not jeopardised due to the tenant running a counselling business from one room of the house. I informed her that on advice from her company when these tenants moved in, we had obtained a copy of the tenant's public liability policy.
She went back to the underwriter and confirmed today with the underwriters (and I will ask for confirmation in writing) that as long as our tenant has one area of the house that she conducts her business in, (ie. she has a designated "office" area") and people are not wandering all around the house and/or yard, and as long as she holds her own public liability policy (which we have a copy of), then the underwriters confirm that she can run her business from the house without jeopardising the insurance we are currently holding.
The insurances are with Westpac. The branch manager checked some documentation and also called their insurance department. I'm not sure if the type of business will make any difference. In this case was about a beauty parlor.
wylie, it probably depends on the particular policy. As we know, some insurers are good and pay out all reasonable claims, whereas some look for any excuse to avoid paying out - and a tenant running a business could be a bewt. 
wylie, it sounds like they were thinking more in terms of public liability, though... what about if the whole building burns down because of something specifically relating to the business, eg faulty hair dryer if it's a hair salon. I'd be surprised if your insurer would pay out for the building in those circumstances, but perhaps they're more generous than I gave them credit for.
wylie, it sounds like they were thinking more in terms of public liability, though... what about if the whole building burns down because of something specifically relating to the business, eg faulty hair dryer if it's a hair salon. I'd be surprised if your insurer would pay out for the building in those circumstances, but perhaps they're more generous than I gave them credit for. We were not only discussing public liability. I quoted the policy number and address and she took the details of the business, went to the underwriter, and came back with the "ok" with the proviso that the business was run from a specific place/room and that clients would not be wandering all over the house.
She understood that my worry was more the public liability aspect, but it is the whole policy that she got a ruling on from the underwriters, not just the public liability portion. That was only singled out because I told her we had a copy of the separate public liability policy that the tenant held for her business.
At this same house a few years ago lived a tenant who asked if he could start up a business from under the house welding tanks. Mum went to her insurer, and when told the type of business, was most definitely told that such a business would jeoparise (or void) the cover. That tenant moved on and found another house to rent. Whether he told his new landlord he was running a business with welding tools is unknown, but it is a risk that we all take, and I don't know an easy answer.
Other tenants have run piano/music lessons on the premises with the approval of the insurance company (and with tenants having separate liability insurance), environmental building company (no clients visiting), jewellery making.
In all the cases, approval has been given from the insurers (except the welding business). I would not think a hair salon involved "dangerous" risks (hot irons maybe) so could not really see that being a problem, but it would be up to the insurer.
These different businesses have been for our properties and my parents, different insurers and over a span of several years. Perhaps it very much comes down to the insurer, and like the ATO, each case must be looked at on its merits.
She understood that my worry was more the public liability aspect, but it is the whole policy that she got a ruling on from the underwriters, not just the public liability portion. That was only singled out because I told her we had a copy of the separate public liability policy that the tenant held for her business.
At this same house a few years ago lived a tenant who asked if he could start up a business from under the house welding tanks. Mum went to her insurer, and when told the type of business, was most definitely told that such a business would jeoparise (or void) the cover. That tenant moved on and found another house to rent. Whether he told his new landlord he was running a business with welding tools is unknown, but it is a risk that we all take, and I don't know an easy answer.
Other tenants have run piano/music lessons on the premises with the approval of the insurance company (and with tenants having separate liability insurance), environmental building company (no clients visiting), jewellery making.
In all the cases, approval has been given from the insurers (except the welding business). I would not think a hair salon involved "dangerous" risks (hot irons maybe
) so could not really see that being a problem, but it would be up to the insurer.These different businesses have been for our properties and my parents, different insurers and over a span of several years. Perhaps it very much comes down to the insurer, and like the ATO, each case must be looked at on its merits.
Agreed. And I didn't mean to suggest that you hadn't asked the question properly, my friend, just "thinking aloud". It sounds like you have an insurer with a good attitude to paying claims, which - as I know all too well
- is crucial. No problems. I was not offended by your question, but it did make me think back to the other times we have had this crop up.
To me, even knowing our insurer is covering this particular business, it still is a big concern that any tenant could at any time decide to just start up a welding business (high risk) and the landlord could be left flapping in the breeze if an accident happened.
In those circumstances, I don't think the insurer would take pity on the landlord and pay up anyway.
My other concern is that even though we are holding the tenant's separate policy, we would not know if it was cancelled.
I suppose all we can do is protect our butts as best we can and hope for the best.
I don't mind these questions, as it does make us dig deeper and ensure we have covered every angle we can.
To me, even knowing our insurer is covering this particular business, it still is a big concern that any tenant could at any time decide to just start up a welding business (high risk) and the landlord could be left flapping in the breeze if an accident happened.
In those circumstances, I don't think the insurer would take pity on the landlord and pay up anyway
.My other concern is that even though we are holding the tenant's separate policy, we would not know if it was cancelled.
I suppose all we can do is protect our butts as best we can and hope for the best.
I don't mind these questions, as it does make us dig deeper and ensure we have covered every angle we can.
Actually, when I read the post I was on the phone to the insurer regarding another matter. My brother had contacted them to change the postal address for the policies that were held by my parents. Some of the policies also required name changes of the policyholder as a couple of houses were recently changed into my dad's name after mum passed away. A couple are now owned by a family trust...... lots of tidying up to ensure all policies are held in the correct names.
During his call, he mentioned that my parents' PPOR was now rented. Staffer told him that it was not insured, as it was now tenanted and we need rental insurance. I don't know if this is absolutely correct, but if so, then we have unknowingly beeing taking a huge risk.
My brother asked that it be noted that from "today" the house be covered until we can change the policy from PPOR to rental cover. She refused to do so, which was all I needed to rev me up and get it sorted.
I called yesterday, quite prepared to cancel the cover and insure it elsewhere. I got a different staffer who could not have been more helpful, and who, after speaking to the underwriters is holding the house as "insured" until she receives the EPA, will and dealth certificate (emailed last night), at which time we will reduce the contents insurance and review the building insurance.
This really shocked me, that this house, worth over $1.2M could well have been in serious jeopardy for the past four months through our not realising that we need to change the cover type. I am not convinced the first staffer was right, and we would have fought it (obviously) but it was a shock.
With all the paperwork we have had to plough through after mum's passing, this was something that slipped under the radar.
I don't know whether we would have been covered had (for example) the house burnt down simply because it was tenanted. It certainly seems that we would have had some serious "issues" if that had happened. On the flip side, we have been paying a premium for cover for over $100K of contents that are no longer in the house, so the insurer has made money out of our error.
I'm sure (NOT) that if they said "no, it was not insured all that time" they also would have refunded us the premium that was wasted.
During his call, he mentioned that my parents' PPOR was now rented. Staffer told him that it was not insured, as it was now tenanted and we need rental insurance. I don't know if this is absolutely correct, but if so, then we have unknowingly beeing taking a huge risk.
My brother asked that it be noted that from "today" the house be covered until we can change the policy from PPOR to rental cover. She refused to do so, which was all I needed to rev me up and get it sorted.
I called yesterday, quite prepared to cancel the cover and insure it elsewhere. I got a different staffer who could not have been more helpful, and who, after speaking to the underwriters is holding the house as "insured" until she receives the EPA, will and dealth certificate (emailed last night), at which time we will reduce the contents insurance and review the building insurance.
This really shocked me, that this house, worth over $1.2M could well have been in serious jeopardy for the past four months through our not realising that we need to change the cover type. I am not convinced the first staffer was right, and we would have fought it (obviously) but it was a shock.
With all the paperwork we have had to plough through after mum's passing, this was something that slipped under the radar.
I don't know whether we would have been covered had (for example) the house burnt down simply because it was tenanted. It certainly seems that we would have had some serious "issues" if that had happened. On the flip side, we have been paying a premium for cover for over $100K of contents that are no longer in the house, so the insurer has made money out of our error.
I'm sure (NOT) that if they said "no, it was not insured all that time" they also would have refunded us the premium that was wasted
.
