Should You Rent to Tenants Running Home Businesses in Your Property?

Usually yes, when the business looks like ordinary residential use: a remote job, bookkeeping, design work, or online sales with a few packages a week. The risk rises with customer visits, employees, stored inventory, and child care, because those uses can break local zoning rules or HOA rules and can fall outside both your landlord policy and the tenant's renters policy. Ask what the business is before you sign, check the local rules, and then allow it in a lease clause with limits you can enforce. In California and Oregon, you generally cannot ban a licensed family child care home.

What should you ask an applicant about their business?

Ask the same questions of every applicant who mentions working from home, and keep the answers with the application:

1. What the business does, and whether it is a remote job for an employer or the applicant's own business.
2. How many customers or clients would come to the unit each week, and at what hours.
3. Whether any employees or contractors would work at the unit.
4. What equipment, inventory, or materials would be stored there, and whether any are flammable or hazardous.
5. How many deliveries or pickups to expect, and whether a business vehicle would be parked on site.
6. Whether the business needs a city license or home occupation permit, and whether the applicant has one.

A remote employee working on a laptop raises none of these issues. A hair stylist with ten clients a week or a reseller with a garage full of stock raises most of them.

Does zoning or your HOA allow it?

Cities regulate a "home occupation," meaning a business run from a home by a person who lives there. The rules differ from city to city, so look up yours before you agree. Two examples:

Ask the tenant for a copy of any required permit or business license before the business starts.

If the property is in a condo or HOA community, read the governing documents and rules for limits on business use, signs, deliveries, and parking. Your lease cannot override valid HOA restrictions, but state law can; California bars HOA restrictions on licensed family child care homes. Oregon's child care law, for example, still lets a landlord prohibit a use that zoning or the association's governing documents do not allow.

Will your insurance and the tenant's insurance cover it?

Often not without a change. The National Association of Insurance Commissioners says a standard homeowners policy typically excludes business property losses and business liability, and many renters and homeowners policies limit office equipment to $2,500. Not telling the insurer about a substantial home business can lead to a denied claim or a nonrenewed policy.

That gap matters to you because an injured customer may also bring a claim against you as the property owner, and the tenant's renters policy may not respond to an injury tied to the business. Before you approve a business with visitors, employees, or stored stock:

1. Tell your own insurer or agent in writing what the business is, and ask whether your landlord policy still covers the property and your liability with that use.
2. Require the tenant to carry business coverage where state law permits. California landlords cannot require licensed family child care providers to buy liability insurance; those providers can use the alternatives described below. For other businesses, options include a home business endorsement on the tenant's policy (equipment limits can rise from $2,500 to $5,000, or up to $10,000 with some insurers, and liability endorsements are typically limited to businesses with few visitors), a separate in-home business policy, or a businessowners policy (BOP), which bundles property and liability coverage for a small business.
3. When customers visit and state law allows the requirement, require business liability coverage that names you as an additional insured (a person added to the policy for coverage under its terms), and get a certificate of insurance each year.

For the baseline coverage to require from every tenant, see why you should require renters insurance.

Can you refuse a family child care home?

In some states, no. Where state law protects licensed home child care, it overrides a lease clause that bans business use.

California. Under Cal. Health and Safety Code section 1597.41, a lease term that restricts use of a rental as a licensed family daycare home is void, and you cannot refuse to rent a house, townhouse, or other covered dwelling because the applicant is a family daycare provider. The tenant must give you written notice at least 30 days before starting care. You may then require a higher security deposit than other tenants pay, as long as the total stays within the state deposit cap. You keep your normal rights over noise, nuisance, and other lease violations.

California also requires each family daycare home to carry liability insurance of at least $100,000 per occurrence and $300,000 a year, carry a $300,000 surety bond (a company's guarantee to pay covered claims if the provider does not), or keep a signed affidavit from each parent saying the home has neither. For a rental, the affidavit must also say the owner's insurance may not cover losses from the daycare. If the provider has insurance and you ask in writing, the provider must add you as an additional insured, as long as doing so does not cause the policy to be canceled and you pay any extra premium (section 1597.531).

Oregon. Since January 1, 2024, under Senate Bill 599, you cannot prohibit a tenant's family child care home if it is certified or registered with the state and the tenant has told you about it, and you must cooperate reasonably. You can require the tenant to pay in advance for modifications the use needs, except work you already owe under habitability law or the rental agreement. You can bar a use that zoning, association documents, or state child care rules do not allow. You choose one protection: signed parent documents releasing you from liability for injuries to their children or guests tied to the child care and acknowledging that the provider has no liability coverage for those injuries, or a liability policy or surety bond naming you as an additional insured. The law does not apply to housing for older persons, and you cannot retaliate against the tenant for the use.

In other states, ask the state child care licensing agency whether licensed home providers have rights against landlords before you deny one.

What should a home business lease clause say?

Write the limits to match your city's home occupation rules and your insurer's answer. A clause that allows low-impact work usually covers:

• Permitted use: the business named and described, with any change or expansion needing your written approval first.
• Customers: a maximum number of visits per day or week, by appointment, within set hours such as 9 a.m. to 6 p.m.
• Employees: none at the unit, or no more than the city allows, with parking in assigned spaces only.
• Inventory and equipment: stored inside the unit, no outdoor storage, no hazardous or flammable materials beyond normal household amounts, and a cap on deliveries.
• Signs: none, or only what the city and HOA allow.
• Licenses and insurance: the tenant gets every required permit and license and keeps the coverage you require, and gives you copies.
• Breach: a violation of the clause is a lease violation, with the same notice and cure rules as any other.

Add a statement that the business must comply with all laws. If you learn a tenant is running an illegal operation, follow the steps in how to deal with a tenant's illegal activity. If the proposed traffic, employee count, or industrial work violates local home occupation rules, do not approve that business use. Outside the child care protections above, you can decline the business use while still renting to the applicant as a resident.

How an applicant answers these questions is part of screening; see the qualities that make a good tenant.