More and more people are opting to start their own business or to join the gig economy, and the past decade has seen a 74% rise in the number of people working from home. Running a business from home can give you flexibility and make for a good work-life balance. It can also be an effective way of cutting costs in the early days of a start-up. However, it is also important not to overlook the legal aspects of using your home as a place of work.
Here, Salv Sole, our Property partner, looks at some of the questions you should ask first.
Is your home leasehold?
If so, then the lease will include restrictions on how you can use your property. Some leases prohibit any business use. Others restrict the type of work you can do or require your landlord’s consent beforehand. It is important to check the terms of your lease to ensure you will not be breaching them. Failure to do so could result in your landlord taking steps to end your lease. If you need to get your landlord’s consent first, you will also have to factor the extra time and cost into your plans.
Are there other restrictions on your title?
Even if you own the freehold to your home, there may still be restrictions in your legal title which could affect your plans. As with leasehold restrictions, these so-called restrictive covenants may prohibit any business use and certain types of trade, or require a third party’s consent.
Unlike the situation with lease restrictions, it is not always clear who can enforce a restrictive covenant. It will usually be your neighbours, or a nearby landowner, although the restrictions may have ceased to be enforceable. Discuss your plans with your solicitor and they will be able to help you. In some cases, they may be able to get the restriction varied or removed altogether. In others, you may be able to take out title indemnity insurance to protect you.
Do you have a mortgage?
If you have a mortgage, check its terms carefully. Most mortgage agreements require the lender’s consent before using a property for business purposes. Breaching its terms could result in your lender asking for early repayment.
Will you need consents from your local authority?
For some types of business, all you may need is a dedicated workspace and a good broadband connection. Others require some more extensive remodeling of your property. For example, you may want to add a home office or to convert an ancillary outbuilding to a workshop. Some alterations will require planning permission, and many will also need building regulations consent.
Failure to obtain the necessary consents could result in the local planning authority requiring you to return your property to its original state, or cause problems when you come to sell your home.
It is not just building works which may need planning permission. You will also need it if running your business amounts to a material change of use of your property. In practice, this will depend upon the nature of your business and whether it changes the character of your home from a single private residence. This may not always be easy to determine in advance. Fortunately, it is possible to apply for a certificate confirming your proposed use is lawful, and your solicitor or the local planning authority can explain this process to you.
Some businesses may also require a separate licence. For example, if you plan to trade as a hairdresser or to prepare and sell food, you may need to register with your local authority.
How will your business impact on neighbours?
If your business use increases the amount of traffic or is likely to disturb neighbours, you will need to consider whether you could be causing a nuisance. If so, you may be forced to stop or to pay compensation. From a legal perspective, proving nuisance is not easy. Your neighbours may find your activities irritating but that does not make them a nuisance. They must show the use of your home is unreasonable and causes them damage or interferes with their reasonable enjoyment of their home.
Even so, if your proposed business could adversely affect others, discuss your plans with your solicitor early on. They can advise you on any potential risks, not only in regard to nuisance but other regulations may apply such as environmental protection legislation.
If you decide to work for yourself, you should take the opportunity to review your overall tax position. It is easy to overlook the impact on capital gains tax. Currently, if it is your main residence, your home would be exempt from capital gains tax when you sell. However, using part of it mainly for business could change this by reducing the amount of relief available. You would then have to pay some capital gains tax on any increase in value when you sell.
Depending on the nature and level of your business use, part of your home may also become liable for business rates rather than council tax.
Who should you go to for advice?
If you are serious about starting a home-based business, it will pay to seek out specialist advice. Talking to your solicitor early on is also important, as they will have an excellent understanding of both the property and commercial issues involved. They can tell you about the various legal restrictions which could affect you, and help you structure your business so you can continue to enjoy your own home. For further information about using your home as a business base, or residential property in general, please contact Salv Sole on 0208 979 1131.