Tenants running business from IP

[Plumber]

Hi All,

I've been refering to ss for some years now and it has been a source of information and much valued. But now there is something on my mind.

We have an IP in Mt Gravatt Brisbane. It is co owned by myself and my brother. It is a 50's timber 3x2 situated very close to everything. we renovated to attract a nicer type of tenant. Until recently this idea hadnt worked.


In the last 3 months however our latest tenants have spent in excess of 10k improving the property, most with our permission eg Mains cabling, running power to garage, window grilles and security systems. We inspected the property after the tenants did the work and both my brother and I are totally gobsmacked at the improvements.

They are 4 months into a 2 year lease and keep the property immaculate and rent is paid a month or so in advance.

Inside the house is no shabby setup - there must be 50k worth of equipment not to mention maybe 30k worth of furnishings. The tenants (according to information supllied to PM on application) are a couple, no kids, no pets. She (mid 40's) is a medical professional and he (early 50's) is "independantly financed".

We suspect our tenants are running a business from the IP. The house is filled with servers, computer screens, electronic equipment, a bedroom has been converted to an office. On the last inspection myself and the PM were standing next to the letter box and the postie happened along and handed us the mail. I saw the mail had been forwarded to a pty Ltd company with our IP's address .


Our PM said she would investigate but is finding it difficult to get an appointment to talk to the tenants. Even if the tenants are running a business there is nothing (according to the PM) in the lease especially forbidding it.

But the situation is making me uneasy. The tenants are obviously well off - but why would they spend money improving our property? And why set up a business or even live in our property? A drive by on weekends is like a prestige car show. Expensive cars parked in driveway and on the street.

Something very odd is going on. Or am I just worrying for nothing?

 

[bluestorm]

In the last 3 months however our latest tenants have spent in excess of 10k improving the property, most with our permission eg Mains cabling, running power to garage, window grilles and security systems.

This didn't tip you off? No, they must be really good tenants that they just spend $10K+ of their money fixing up your place.

Clearly it's a business. But there are plenty of people who work from home. The guy could be a graphic designer, or web designer? Probably just wanted to reduce tax with "business expenses" to fix up their "office".

 

[Ace in the Hole]

This will attract more risk to you as a landlord.

I took out a new building and landlords insurance policy today, and one question I remember them asking was:
Will any business be operated from the property.

If business is being operated from your property and it burns down, you probably won't be covered.

Best to get this sorted out.
Did you ever question or think about why they wanted to spend their own money, 10k, improving your property?

 

[mary&mat]

Is it breaching any privacy laws to just ask them?

Or, can you google the street address & see what comes up?

Or, google their names?

 

[Plumber]

Thank for the fast replies Blue storm and ACE.

Yeh I was worried that a business being operated from the IP would complicate matters and increase risk but I wasn't sure how.

We didnt know they were going to spend 10k. We know they spent 5 k getting the meter box and mains cabling upgraded. They have spent maybe another few k on landscaping (the lawn has been returfed, advanced screen shrubs planted down the side of house). They mentioned nothing about these landscaping improvements.

Initially they asked us if we would let them run electricity out to the garage expecting maybe a 2 k job. They offered to pay so we said yes but we wanted documentation and to inspect afterwards. They then sent us a copy of the electricians invoice - paid and itemised + a professional plan showing wiring location etc. The tenant said it came to a bit more than they expected but its been paid so treat it as a xmas present!

They also asked us if they could instal grilles and security so they could get their computers insured. We agreed and offered to pay but they wouldnt hear of it!

If they are claiming these costs as business expenses I have to wonder what sort of business would allow landscaping and electrical work as deductions.

I'm going to check my insurance papers and maybe ring the insurers tomorrow to check things out.

Can I take steps to stop these people running a business from my IP ?

Many thanx DAVE

 

[Plumber]

Hi Mary/Mat,

Our PM promised to talk to them but she claims they are not making themselves available. They will not put anything down in an email apparently.

I have been doing my own sluething - I asked one of the neighbours that I got on with while we were renovating.

It seems he works from home mostly. There are a few visits during the week from business types in big cars but they arent a nuisance.

The yard is kept maintained by a greenkeeper and the dude likes growing flowers to relieve the stress. (stress from what ?)

The neighbours love the couple.

 

[brendio]

You could also try an ASIC search for company info.

However, just having a pty ltd company does not necessarily mean they are running a business (could be a SMSF, for example). Also, if it is a business that does not involve customers visiting the property, I don't see that it should be an issue to the land lord. I work from home completely through the internet. I have a friend who also works from home and he rents, but any contact he has with customers is him visiting them.

If they are having customers visit them, then it is of more concern and the relevant permits and public liability insurances would be required.

 

[mary&mat]

So is it just an insurance worry?

If so, could you speak to them & change the insurance & maybe have them cover the difference if it's more expensive?

 

[rachels]

What are your worrying about? There could be a lot worse tenants, this is a business, is it not? Why treat it like the local suspicious sticky beak would?

They are renovated your property to a high standard by the sounds of it. Possibly they have reasons to not buy a property, temporary plans, tax deductions, are happy with your house or whatever? If they are paying the rent, looking after the place and actually improving it then take a deep breathe and get back to what you were doing.

 

[kathryn d]

Does their lease prohibit them from running a business from home?
If not, like someone else said..contact your insurance company

 

[Rolf Latham]

Hi

Sounds like someone like us has rented ur place.

Unless they are growing stuff in the roof under lights I dont believe u have much to worry about.

Doesnt look they are running something that demands a lot of client foor traffic either.

ta
rolf

 

[handyandy]

Sounds to me like a dream tenant - spends money improving your property, what else do you want?

I am sure that they will be more than willing to have a supplementary insurance policy to cover any addition 'risk' like public liability. Even if, when you ask your insurance, they indicate that there is an extra premium for home business I would simply ask the tenant to pay the extra or conversely ask them to pay the lot. They are getting business premises very cheap.

cheers

 

[wylie]

I would think these would be great tenants. They have spent money on the premises to suit their business, so are unlikely to move in a hurry. Check with your insurer that the insurance is not put in jeopardy.

One case my mother faced was a tenant wanting to run a re-gas business for bbq gas bottles, underneath a timber house. Insurer said a most definite "NO" and tenant moved on and found another place to run his business.

Second case is some tenants we have currently, one of whom runs a counselling business from the house and has people come to the house. In this instance we asked for a copy of her public liability insurance, as a client slipping would probably not be covered by our own public liability insurance.

Another case where we had a tenant run a business from home - he didn't need a separate public liability insurance as he had no clients visiting the house.

Another case was a lady giving art lessons to a small number of children from the IP. She refused to get separate cover, we issued her a notice to cease the business, and she moved out, apparently to a friend's house and is probably running her business from there. Perhaps her friend has no idea of the risk she is taking, or perhaps the lady has paid for insurance? I don't know, but at least she is no longer putting us at risk.

I think you need to check with your insurer, tell them what the business is, and let them decide. I would get it in writing.

 

[alplant]

They are getting business premises very cheap.

cheers

And that answers the question of why they would want to rent your place, and be happy to spend 10k on it. If it was being rented as a commercial property they would have to do that anyway, and the rent would be a lot more. As Wylie pointed out this scenario isn't all that uncommon, but like everyone has said, I would be a little concerned about insurance issues.

They are probably making themselves unavailable to the PM because they are afraid you might want to change their lease to a commercial one.

 

[Plumber]

Thank you for all your input everyone,

I am still concerned about the situation. Today I am going to contact the PM and I will ring my insurer. What is aggravatting things is that one knows exactly what the tenants are doing.

I went for a walk past the IP this morning at 530 am and there was a security guard standing in one corner of the front yard. He had a little portable table and chair set up discretely. The house itself looks closed up and vacant.

Just out of interest - has anyone else had tenants that spend decent money on your IP's ? How did you feel about this?

I realised last night that for some reason I feel like I am in some sort of obligation to the tenants in as much as if they ask for something reasonable to be done I feel it would be only decent to do it for them. But at the same time I am annoyyed at them for possibly increasing my risk/liability.

I am in a very strange state of mind about this.

Many thanx Everyone Dave

 

[Brett IP]

For one, atleast you can raise the rent quite easily & by steep amounts, they are obviously claiming it anyways & seem happy to stay, so thats a bonus.

In regards to insurance, how is a Landlord to know (other than the amount they have spent) if tenants are running a business from the premises, especially if there arent any customers coming to the house?

 

[kathryn d]

Maybe it is for witness protection?
..maybe I watch too many crime shows

 

[Plumber]

Hi Katherine, LOL I thought the same thing.

 

[Rolf Latham]

nah

probably not...............but thats the reason I give myself wehn some of my clients wont take my calls

ta
rolf

 

[wylie]

I went for a walk past the IP this morning at 530 am and there was a security guard standing in one corner of the front yard. He had a little portable table and chair set up discretely. The house itself looks closed up and vacant.

Crikey!!! I'd definitely be asking the PM to find out what type of business is being run. The amount spent would make me suspicious, but as others have said, spending that is still less for them than paying commercial rent.

Just out of interest - has anyone else had tenants that spend decent money on your IP's ? How did you feel about this?

No. We haven't had money spent by tenants because nothing particular was needed. In your shoes, I would feel rather obligated to the tenants and would want some written obligation that they will leave the changes when they vacate. I would have trouble asking them to leave, and would be happy for the upgrades, but unhappy at feeling I now owe them something, even if that "something" is to allow them to stay past when it suited me.

I believe you have every right to ask what business they are doing, and tell them you need to check with your insurer. Does the PM not know what business they are in? Surely it would be on the application.

In regards to insurance, how is a Landlord to know (other than the amount they have spent) if tenants are running a business from the premises, especially if there arent any customers coming to the house?

That is a big problem, in my opinion. It was only through being told by the tenant himself (the gas man) that my mother knew she had a problem. If he had decided to run the business without telling her, he would have been putting her at huge risk, and she would have been totally unaware.

In the art teacher situation, it was the other tenant who gave Mum the heads up. Otherwise she also would not have had any idea she was wearing a big risk. I don't know the answer to this one, especially as these business were run as separate to the employment stated on the application.

I believe this probably happens more often than many landlords know.