A new statute promises to remove the threat of 1954 Act protection for businesses carried on at home
Many years ago, I defended a tenant in Westminster County Court against a claim for possession brought on the ground that she was an author who had written a book (and therefore carried on a business) in her landlord’s premises, in breach of a provision allowing only residential use.
Conversely, from 1970 to 1989, Julian Sitkowski rented premises at 335 Battersea Bridge Road, London SW11, using the ground floor for his electrical retail business and the first floor as a residence with his family. His tenancy agreement forbade use of the premises other than as an electrical retailer. Sitkowski ceased work in 1989, but continued to live on the first floor of the premises, while using the ground floor for storage. In October 2003, Sitkowski was served with a notice to quit, and then with possession proceedings, which he defended on the basis that he was a statutory tenant entitled to protection under the Rent Act 1977 (“the 1974 Act”).
The case reached the Court of Appeal, which analysed the many authorities that dealt with circumstances where tenants of mixed residential and business premises had sought to switch their statutory protection from the Landlord and Tenant Act 1954 (“the 1954 Act”) to the 1977 Act, or vice versa, depending on the nature of their occupation from time to time. Neuberger LJ (as he then was), described most of those authorities as “either flawed or incomprehensible”.
The court held that although a tenant who initially had the protection of the 1977 Act could, by his unilateral action, switch to the 1954 Act, and could then unilaterally switch back to the 1977 Act whose protection he enjoyed initially; by contrast, a tenant who initially had 1954 Act protection, could not unilaterally switch to 1977 Act protection. Sitkowski’s defence therefore failed, because, having been let for mixed business and residential use, the premises were not “let as a separate dwelling” within section 1 of the 1977 Act.
Leasehold avoidance
Although the judgment in Tan v Sitkowski [2007] EWCA Civ 30; [2007] 1 EGLR 113 came as some comfort to landlords in similar circumstances, it did not allay their apprehensions entirely. What form of statutory protection applies where, for example, a sculptor uses part of her flat as a studio; or an occupational therapist treats patients in a spare bedroom; or a barrister works at home preparing cases? Is the statutory security of tenure that such lettings enjoy: (a) residential (in which case the reduced strictures under the Housing Act 1988 afford the landlord little difficulty); or (b) business (in which case the 1954 Act may present the landlord with a real problem)? And what of the situation (which was not established on the facts in Tan) where the use of the property changes, with the landlord’s approval?
Landlords confronted with this dilemma – or just prudent landlords – ensure that residential tenancies forbid any business use at all, and refuse requests from tenants to be allowed to run a home business, in order to avoid the possibility that it will be more difficult to recover possession of the premises at the end of a tenancy. This is a wasteful practice: according to the Department for Business Innovation & Skills, there are some 4.9m small and medium-sized businesses in the UK and, of those, around 2.9m are home businesses. Businesses operated from home are of growing importance to the economy, with an increase of 500,000 since 2010. As technology improves, the broadband roll-out continues and the internet becomes ever more part of our lives, we can only expect the trend to move further in that direction.
The new home business tenancy
This situation prompted the government to tack onto its Small Business, Enterprise and Employment Bill, which it had introduced into the House of Commons on 25 June 2014, two sections that amended the 1954 Act so that its provisions for security of tenure of business tenancies do not apply to tenancies of dwellings granted to individuals for occupation as homes when those individuals, with their landlords’ permission, carry on businesses of a kind that might reasonably be carried on at home.
The bill did much else besides (with a raft of provisions dealing with pub tenancies, which will also be of interest to readers), but it is the clauses that became sections 35 and 36 of the Small Business, Enterprise and Employment Bill Act 2015 (“the 2015 Act”), which gained royal assent on 30 March 2015, that are worth consideration by landlords and tenants of residential properties. These provisions passed through the legislative process more or less untouched, to general agreement.
The aim of the new legislation then, is that henceforth (the provisions are not retrospective), starting a business from home will not create a business tenancy, thereby encouraging further growth in the sector. Sculptors sculpting, seamstresses sewing and bakers baking at home will not gain 1954 Act protection.
Sections 35 and 36 achieve this by amending the 1954 Act to exclude home business from its provisions. “Home business” is defined as “a business of a kind that might reasonably be carried on at home”. Although this definition met with a certain amount of derision in the House of Lords, the government has retained the power to create regulations that will lend flesh to the bones of the definition in case of any difficulty.
Under this new statutory framework, therefore, landlords can accept some working at home by tenants without risking losing control of their property – the tenants having only normal residential security of tenure. Secondly, where a tenant carries on a home business in breach of any prohibition against business use and the landlord gets to know about it – and thus at the moment is seen effectively to acquiesce to it – the 2015 Act will not give the tenant statutory rights. It is hoped that all this will make landlords less likely to prohibit home businesses in their property.
Guy Fetherstonhaugh QC is a barrister at Falcon Chambers
