There is a growing trend towards running a home-based business. In a December 2020 report, Business.gov shares that approximately one million Australians are running a home-based business.
There are many benefits to running your own business from home. Flexibility, increased profitability, and a comfortable work environment are some of the top benefits of running a home-based business. However, for those who are thinking of starting a company, it is important to understand that running a home-based business does not exempt you from the rules and other essential aspects of ownership.
The details of business insurance for home business can be confusing. In particular, owners of home-based companies are often unaware of the insurance requirements for businesses that operate from a home that is a rental property.
What the tenant needs to know.
Government regulations regarding property used to run a business.
Business people who lease, rent or own property used for their business, whether commercial or residential, will meet the following requirements:
- There is an opportunity to reduce some property costs
- Report any rental income in the tax return.
- Pay capital gains tax on profits from the sale of property.
- Resolve any GST responsibilities and entitlements.
If my home is rented, can I legally run a home-based business there?
The answers to questions about running a home business from a rented accommodation are not the same size. Generally, a rental agreement allows a person to occupy and use a home for residential purposes in exchange for a reasonable price.
By definition, running a business from a rented house is not particularly illegal. There is a gray area where landlords and tenants can agree to use the rent for a home-based business. However, different factors can influence a landlord's decision. The details of the property insurance cover should play an important role in determining the permission to operate a company from a rented accommodation.
Do I need my landlord's consent to run a business from my rented home?
Before you can start any type of home rental company, you must get written approval from your landlord. Often, running a business space from a rented residential property terminates the lease agreement. That is why permission is required.
Many home business people mistakenly think that running a small company or a 'side hostel' is acceptable even if they rent their own house. In some cases, work in areas such as freelance writing, influencing social media, or online consulting is completely overlooked by landlords. However, not paying attention does not mean that the business is approved.
Will my landlord's property insurance cover my home-based business?
With rare exceptions, landlord's insurance will not cover the tenant's home-based business plan. In fact, many insurance policies have specific clauses that outline the consequences if tenants are running companies from their flats or rented homes. If the tenant violates the terms of the agreement, the landlord may risk terminating the property insurance. Denial of claims is an additional consequence of such a violation.
Example: Haley runs a small hair salon in her rented flat without the landlord's knowledge or permission. One of his clients breaks his arm while traveling on an instrument cord. Not only will the landlord's insurance policy not cover the accident, but the landlord may lose his insurance or face higher premiums. In addition, Haley may lose her lease, and she may be held responsible for customer injuries.
What type of business insurance should I consider if I run my company from my rented home?
There are several types of business insurance policies that can be helpful to you, depending on your business type and other details. Grace Insurance Professional can help you develop a policy to meet your needs.
There are three types of policies that apply to most businesses:
- Public Liability - The policy will protect you if you are at fault for the loss of a third party in your business.
- Asset Insurance - Having asset insurance will protect important pieces of equipment and inventory.
- Professional Indemnity Insurance - If a client sues you for professional misconduct, this insurance covers you. People who offer advice or are part of the service industry benefit greatly from Professional Indemnity Insurance
- What the landlord needs to know.
Signing a tenant's request to open a home-based company can be a slippery slope for property owners. There is a good chance that authorizing a business or business can invalidate the insurance contract. It is important to review property insurance and all attachments before allowing a tenant to run a business.
Points to consider before allowing a business to operate from your rental property
- If the body of the property is corporate, can the business run from its residential units?
- Will Class Insurance Allow Businesses to Run?
- Is a commercial lease necessary or is the property still primarily used as a residence?
- What business does the tenant intend to run? Insurers, as well as other tenants, will likely see a copywriter or small virtual design studio differently from a company that runs daycare or teaches tuba lessons.
- Will customers and suppliers visit the premises? Those who come to the property increase the chances of accidents and therefore liability.
- Will the business use more resources like water or electricity? Is the tenant willing to absorb the extra cost?
- Does the tenant have adequate licensing for the services or products provided?
- Does the tenant have a car?
- Is insurance necessary for business? Do they think the landlord's property insurance does not cover their business?
- Will the tenant store on the rental property? What kind of material will be on the premises? Do these materials pose an additional risk to the property or other occupants?
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Insuring a home-based business in a rented house can seem confusing. You can be sure that Grace Insurance experts can guide you through this process and make sure you have the cover you need.
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