Starting a business is never easy, but more and more young entrepreneurs are discovering the benefits of running a business out of their homes. The concept of using residential property for business purposes has gained significant popularity, especially among startups and small businesses aiming to minimize overhead costs while maintaining convenient locations for their operations. Looking into the higher perks of it, the option becomes more tempting. As every pro comes with some cons, we should understand it in more detail. In this article by Jugyah, we will explore the intricate relationship between businesses and residential properties, providing insights into the legal framework, key considerations, risks, and limitations associated with renting a house for business use.

Renting a House for Business

Residential properties, as the name suggests, are primarily intended for personal habitation. However, renting residential properties for commercial purposes is not uncommon. Renting a house for business comes with two aspects - one from Landlord’s side, and the other from the tenant’s side. For tenants, it offers tax advantages to a home-based business, more personal freedom, less risk and stress as well as more time for family and friends. For Owners, Posting a rental house for commercial purposes yields higher rental income but it also comes with a bigger responsibility and liability.

For both, the most important part is the rules and regulations of the society, that is, one can only use their residential property for commercial purposes if the society management and zoning rules permit them to do so.

What Does the Law Say About Using Residential Property for Commercial Usage?

Using residential property for commercial usage, often falls under the scope of specific regulations and legal considerations. To ensure that businesses operate within the bounds of the law, it is essential to get a clear understanding of the legal aspects involved.

A residential property can be used as commercial property if you have legal permission. Law for the same is different in every state; some states may only allow 30% of residential property as commercial property, while others might allow 50% of usage. Few legal experts say, “Services by resident advocates, chartered accountants, lawyers, and doctors are some of the approved commercial activities in any residential area.” The dual usage of space is also allowed for tutorials, dance, yoga classes, clothing boutique, and food delivery from home-kitchen, among others.

The activities which involve manufacturing or production or movement of goods, that is creating a nuisance and causing harm to other residents in the society is mostly not allowed, unless local municipal corporation has permitted for the same. However, Supreme Court has restricted these within the residential premises:

• Banquet Hall
• A business cannot run in a residential area if it is a polluting environment, harmful, obnoxious, inflammable etc.
• Repair shops for automobiles
• Retail shops dealing with the sale of liquor, and junk food
• Construction material cannot be sold in timber, marble, iron, steel, sand, firewood, and coal.

In Mumbai, Municipal corporations, such as the Brihanmumbai Municipal Corporation (BMC), have their own set of rules and bylaws governing land use and property usage within their jurisdictions. Given the complexity of these regulations and the potential legal implications, it's highly recommended to seek legal advice and consult with local authorities or municipal offices in Mumbai when considering using a residential property for commercial use.

Key Points to Remember while Using Residential Property for Commercial Usage

When contemplating renting a house for business use, several key points must be kept in mind:

Respect Neighbors and Local Regulations

Be mindful of your neighbors when operating a business from a residential property. Noise, increased traffic, and other disruptions may impact the neighborhood.

Consult Legal and Tax Professionals

Converting a residential property into a commercial one could imply paying more property tax. The civic body would levy commercial charges on the property and water and electricity supply, depending upon the area, size, and nature of the business activity.

Zoning Compliance

Ensure that the property's zoning permits the intended business activities. Get permission in writing from the local authority for smooth functioning.

Lease Agreement Review:

Thoroughly review the residential lease agreement, paying close attention to any clauses related to business use.

Insurance:

Verify with your insurance provider whether your residential property insurance covers business activities. It may be necessary to obtain separate business insurance coverage.

What Are the Risks Involved in Using Residential Property for Commercial Usage?

The landlord is liable for any issue that happens, but a Tenant is morally responsible to take care of the property and to avoid risks like these:

Lease Agreement Breach

Violating the terms of a residential lease agreement by using the property for business without the landlord's consent can lead to eviction and legal action.

Zoning Violations

Using a residential property for commercial purposes without the appropriate zoning can result in legal consequences, including fines and injunctions.

Neighborhood Disputes

Increased traffic, noise, or other disturbances associated with business operations may lead to disputes with neighbors and damage your relationship with the community.

Limitations of Renting Apartments for Business Use?

Renting Apartments for Commercial purpose comes with its own limitations:

Upkeep

Due to business activities the apartment’s upkeep might not be up to the mark which can lead to extra money and time expenditure from the landlord’s side when the tenant evacuates.

Neighborhood Decline

Operating a business in an apartment can lead to noise complaints from neighbors, potentially resulting in lease violations or eviction.

Space Constraints

Apartments typically offer limited space, which can be challenging for businesses requiring storage, equipment, or frequent client meetings.

Security Concerns

Depending on the nature of your business, apartment security measures may not be sufficient to protect your assets and sensitive information.

The property owner may also want to know the purpose of the business, hours, inventory requirements, how many employees will be on the premises, and tools or equipment being used. There may be questions about customer parking, how often customers will be at the property, and the designated workspace. The landlord could end up turning the proposal down, but one should keep in mind that it is against the law to run a business in a rental property without getting approval first.

Conclusion

It is possible and a great practical solution for many entrepreneurs and small business owners to rent a house for business purposes, offering cost-effective alternatives to traditional commercial spaces. However, it's important to practice this with a clear understanding of the legal framework, potential risks, and limitations associated with using residential property for business use. In return, it can stand as a beneficial deal for both the landlord and the tenant, ensuring a smooth and successful venture.