Home-based business - increase rent?

[Nathan Gesner]

I normally forbid tenants from operating a business from a residential property. However, we have a house on 100 acres and a tenant that wants to breed high-end dogs. These are professional people, not a puppy mill, and their dogs sell for up to $6,000 per. We will obviously ensure they carry proper insurance, abide by the law, and submit to regular inspections.

Question: if they live in the home and operate a business, would you charge them additional rent for the business side? If so, how much?

[John Mocker]

Nathan,

If you are going to incur additional costs you should get reimbursed.   From an Insurance perspective, you need to review this with your agent to find out:

1. will the current carrier allow that use.  If so, will there be an increase to the cost

2. If the current carrier will not allow it, what is the cost of the replacement coverage

As you are likely to be named in any suit for injury on the property, I would review what your total Liability coverage is and if it will be adequate. 

The Breed of Dog will be of importance.  There are certain breeds that make it very difficult to get Homeowners or Dwelling/Fire policies.   Pitt Bulls and Rottweilers are two of the breeds that will be an issue but others can be problems as well.

Lastly, I would review your current lease with your attorney and amend it to reflect the new commercial exposure.  There are some risk management ideas you can discuss with the attorney that we see in commercial leases:

- Requiring the Tenant to name you as an Additional Insured under their policy

- Requiring 30 day notice of cancellation or revision of the policy

- Requiring the Tenants coverage to be Primary and Non-Contibutiory

- Including hold Harmless and Indemnification clauses

- Requiring their company to waive Subrogation

The Attorney can advise based on local laws other things that may be applicable