Help! My Tenant Wants to Use My Rental for Their Business

By Kimberly Rau, MassLandlords, Inc.

A survey has shown that one in three Americans have some form of side hustle, that is, an extra source of income in addition to their full-time job (or jobs). For some, this means participating in our growing gig economy: picking up groceries for Instacart or takeout for DoorDash, driving for Uber or Lyft, or freelancing in any number of industries.

America is the land of free enterprise, but that doesn’t mean you necessarily want your property used for just any home business.

Side hustles aside, a growing number of Americans are working from home. Some offices went fully remote during the pandemic and stayed that way (or haven’t fully moved back in-office yet). Other people left their office jobs and found full-time remote work. Many of these jobs only require a strong internet connection and a good computer (or, in the case of Lyft and the like, willingness to put some extra wear and tear on your vehicle).

But what happens when your tenant wants to use their home as their business headquarters for something that may cause more wear and tear on the unit, or invite additional people into the home? Is this legal, and, if so, do you have to allow it? Should you allow your tenant to use their rental home for their business?

In this article, we’ll look at the requirements you and your tenant may face if they open a home business out of their rental, as well as examine the pros and cons of different types of popular home businesses. There’s no one-size-fits-all answer to this question, but with a little guidance, you and your tenant should be able to come to an understanding.

Question 1: Is Operating a Home Business Legal?

If the business itself is legal, it’s usually considered lawful for someone to operate a home business, whether they own or rent their home.

For instance, Massachusetts requires any home daycare to be licensed, regardless of size. If your tenant is new to the state, they may be unaware of this, as some other states allow daycares to be unlicensed as long as the number of children stays under a certain number. In Massachusetts, there are also limits to the number of children (including the provider’s own) that can be in the daycare.

There may be local laws in effect as well. Even in states where marijuana use is legal for recreational purposes, grow operations may be still be illegal. Make sure you understand the laws before approving anything.

However, that doesn’t mean that home businesses can or should be a free-for-all. Your municipality may have its own regulations preventing your tenant from opening shop. An ordinance filed at the end of 2021 seeks to expand Boston’s “cottage food” law, which would make it easier for bakers to sell “low risk” foods from their home kitchens. And even if you can open a home business from a zoning perspective, there are still hurdles to clear.

Question 2: Am I Zoned for a Home Business?

Some cities and towns have their own rules for home business operations, even if there are no restrictions on a state or federal level.

For instance, if your tenant wants to get a bunch of chickens and start selling fresh eggs from home and at farmers markets, your city may have something to say about livestock on lots of certain sizes (and many municipalities ban farm animals altogether). Cambridge says “no chickens allowed,” but Boston, along with many other Massachusetts cities and towns – doesn’t limit the number of chickens you may have. Natick limits the number of chickens based on your license or permit; Holyoke doesn’t require a permit at all. Salem doesn’t require a permit or limit the number of chickens you can keep. It also allows roosters.

Other zoning restrictions may prohibit commercial operations entirely, or restrict street parking, making some businesses entirely untenable (you can’t start a palm-reading business in the suburbs if no one can park near the place). Still other local laws may regulate signage and advertising in residential zones, or state that car mechanics may not operate out of a residential garage.

In these cases, opening a home business may require a zoning variance (or may be out of the question altogether). You and your renter would need to decide the best course of action going forward. On a very local level, some condominium complexes may also have rules against home businesses. If you own a condo that you’re renting out, your bylaws may prohibit any kind of commercial endeavor.

Question 3: What Type of Home Business is It?

Let’s say that your municipality allows for home businesses (or at least the type of home business your renter wants to start), and it’s lawful on a state and federal level. With that step out of the way, it’s time to drill down and find out exactly what is going to be happening on your property.

Find out what type of business they want to open, and what the inventory and space needs for it are. Someone selling crafts on Etsy is probably going to be fine. If your tenant wants to refinish furniture and sell it on Facebook Marketplace, that’s a much bigger space commitment (and a messier, smellier one) than a tenant who wants to buy small antiques and resell them on eBay. A nail salon is going to create a permeating smell of acetone, especially if the rental is not fitted with proper ventilation for such an exercise. You may or may not have the ability to accommodate what your tenant wants to do.

Next, determine whether this is a single-person operation, and whether there will be any customers on property. Will people be stopping by to pick up goods? Will they be staying on the property for longer periods of time to take a class? Will there be children on premises all day for a daycare (and if so, are you lead-compliant)? Where will people park?

If your tenant wants to open a laundromat or wash-and-fold service, or start growing succulents to sell online, you will need to make sure you have separately metered water. Selling food may require certain licenses and inspections.

Next, find out the proposed hours of operation. Your renter may be planning to only work on the weekends, or they may be imagining teaching cooking classes at 11 o’clock at night. Will there be zero anticipated traffic to the home, or will people be dropping off their children at 5 a.m.?

Question 4: What Happens if Something Goes Wrong?

This is probably the biggest concern you as a landlord should have about your tenant opening a home business in your rental property. Your homeowner’s insurance is not likely to cover you if something happens to the house because of business operations (your tenant’s cupcake operation causes a fire, a distillery blows up), or if someone gets injured while visiting your tenant’s business.

Your tenant’s renter’s insurance will also not cover business-related injuries. Any business where customers are actually visiting the property to pick up goods introduces new liability. This increases even more if the business patrons are staying on-property to receive services (think personal trainers, hair stylists or therapists).

You may also need to be concerned about environmental issues (runoff from solvents or other chemicals). Remediation for these problems can be costly, and not likely to be covered under run of the mill insurance if the damage comes from using a residence as a place of business.

In other words, basic homeowner’s or renter’s insurance won’t cut it for most in-home small business ventures. You, your tenant or both of you may need to pay extra insurance premiums to ensure everyone is safe in the rental. If your renter takes out a business owner’s policy, they may be able to list you as a “named insured” party as well. This covers you, and lets the insurance company know a third-party interest is involved in the policy. Then, if something happens to the property as a result of the home business, you won’t have to worry about expensive repairs falling in your lap.

Question 5: What Will the Neighbors Think?

When agreeing to a home-based business, it’s not just liability, extra traffic to your rental or wear and tear that you have to worry about. You also have to think about the quiet enjoyment that your property abutters or tenants in the same building are entitled to. Is your furniture restorer going to be running power tools night and day? Will there be cars constantly parked up and down the street? Is everyone going to appreciate the dulcet tones of new brass instrument players having lessons at all hours? What about a car wash or auto repair/detailing business?

Remember, just because it’s legal doesn’t mean it’s going to go over well. Even if your municipality allows chickens and roosters, did you know roosters don’t just crow in the mornings? They crow whenever they feel like it, and many feel like it an awful lot. Legal or not, that may not go over well with the neighbors if your rental is on a small plot, or if you rent a multifamily.

Finally, if you have a multi-family rental unit, make sure your entrepreneurial tenant is compliant with the lease while running their business. If you have a clause that says “no window decorations,” then your tenant who couldn’t put up their son’s high school graduation banner may take umbrage with your other renter’s business sign hanging up. If you have rules about not working on the car in the driveway, and someone starts offering oil changes, there may be confusion or complaints. Make sure everyone is on the same page.

Question 6: What if My Tenant Opens a Home Business Even After I Say No?

If your tenant ignores your decision (or just doesn’t ask) and your lease specifically prohibits using the rental as a business, you’re off to a good start. You can reference the lease violation and tell your renter that if they do not stop running their business, you will terminate the tenancy for cause. (No, legally you do not have to give your tenants a warning first, but it’s always better to try communication before choosing a nuclear option, especially if these are otherwise good renters.)

Otherwise, it’s better if you aren’t in this position to begin with. If your tenant approaches you with a business idea, you may have to say no right away. It may simply be impossible to allow. But there’s also the chance that you may be able to come to a compromise that makes everyone happy. (“You can teach music lessons, but not before or after the lease’s quiet hours” or “Before I okay this cupcake business, I need you to do the legwork to get the permits.”)

Conclusion

There are a lot of drawbacks to allowing a home business to operate out of a residence, but it doesn’t have to be all bad. Before making a knee-jerk decision, talk to your tenants and have a realistic discussion about expectations and limitations. You may still have to say no, but it will be an informed decision.