Are You Really Covered? Landlord Insurance and Home-Based Businesses

A recent situation in our portfolio highlights a risk many landlords don't know about: a tenant's side business can put your insurance cover at risk. It's something I want every one of our owners to understand, so I'm walking you through exactly what happened and what to check.

A tenant had a small side business making products at home. No customers came to the property. They simply made and stored their stock there.

When the owner asked us to check their cover, the insurer said that even storing items used for a business could count as business activity at the property. The owner would not be covered if they made a claim.

To make sure this wasn't just one insurer's view, I checked with two other landlord insurers. Both told me the same thing.

Thankfully, it was sorted out before anything went wrong. But it could just as easily have been discovered at claim time.

With so many people now working from home, running side hustles or selling online, I suspect plenty of landlords are in the same position without knowing it. So here's what you need to know.

Why insurers care about business use

Most landlord policies are written for a property used as a home, and nothing else. Specialist landlord insurer EBM RentCover explains that running a business from a rental increases the risk of loss, damage and liability claims, which is why many policies exclude cover for properties that house a business. Their managing director notes there is usually a clause prohibiting commercial use of the premises. (Smart Property Investment)

It helps to separate two very different situations:

• Working from home for an employer. A tenant on a laptop doing their normal job is generally treated differently from running a business.
• Using the home to earn income from a business. EBM says that if a tenant is using the premises to generate income, it is likely to affect a claim. (PropertyUpdate)

That second category is broader than most people expect. Common examples include:

• Making and selling crafts, candles, cosmetics or clothing
• Running an online store and keeping stock at home
• Hair, beauty, massage or tutoring with clients visiting
• Storing tools, equipment or materials for a trade business

As this situation showed, customers don't need to visit. Storing stock alone was enough for three insurers to say the owner would not be covered. Every policy is worded differently, which is exactly why you need to check yours.

Your duty to keep your insurer informed

Under the Insurance Contracts Act 1984, you have legal duties to give your insurer accurate information, and they don't stop once the policy starts. They apply again whenever you renew, vary or extend your cover. (Gallagher)

Which duty applies depends on how your policy is classified, which is a question for your insurer. Either way, the practical message is the same:

• Answer every question accurately. For policies taken out for personal or household purposes, you must take reasonable care not to make a misrepresentation. Guessing at an answer can be enough to breach that duty.
• Tell them about changes. For other policies, you must disclose anything you know that could affect the insurer's decision. At renewal, if you don't tell the insurer about a change, you are taken to have told them nothing has changed.
• Know the consequences. If you fall short, the insurer may cancel your policy, or refuse or reduce a claim.

That's why a quick call when something changes at your property is so important. How the property is being used is exactly the kind of information insurers want to know.

What Tasmanian tenancy law says

In Tasmania, a tenant must not use the premises for unlawful or non-residential purposes. This comes from section 52 of the Residential Tenancy Act 1997. (Hobart Community Legal Service, Residential Tenancy Act 1997)

In practice, this means a property manager can ask a tenant to stop business activity that puts the owner's cover at risk, as we did in our case. It doesn't mean every tenant who works from a laptop is doing the wrong thing.

The better approach is prevention. Most tenants with a side business simply don't know it could affect their landlord's insurance. A friendly conversation early is far easier than a breach notice later.

If an owner is open to allowing a small home business, it can sometimes be done properly. EBM RentCover suggests the owner first confirms the insurer will continue cover, then adds a special condition to the lease making the tenant responsible for their own business insurance. (Smart Property Investment)

Five checks every landlord should do now

The whole process takes about an hour, and it could save you from a rejected claim.

1. Find your policy documents. Locate your current Product Disclosure Statement (PDS) and policy schedule. Your insurer can email them if you can't find them.
2. Read the exclusions and conditions. Look for any wording about business use, commercial activity or how the property must be occupied.
3. Call your insurer and describe the actual situation. Don't just ask whether you're covered. Explain who lives there and how the property is used. If you know a tenant works from home or stores items, say so.
4. Get the answer in writing. A quick email confirming what they told you is worth keeping on file.
5. Send us your current policy or certificate of currency. We'll keep it on record and can flag anything we notice at routine inspections.

If your insurer says a particular use isn't covered, don't panic. Talk to us. Depending on the situation, the insurer may offer other options, or we can work with your tenant on a solution.

A note for tenants

If you rent with us and run a small business or side hustle, you're not in trouble. Please just let your property manager know, so we can make sure everyone is protected.

It's also worth knowing that your landlord's insurance does not cover your belongings. Moneysmart explains that renters still need their own contents insurance to cover their belongings and their legal liability. (Moneysmart)

If you do run a business from home, check that your own insurance covers your stock and equipment, and whether you need business insurance as well.

A final word from me

I'm sharing this because I'd much rather you find out now, over a cup of tea and a phone call, than in the middle of a claim. If you have any questions, or want us to check in with your tenant, just give me a call on 03 6331 5544. That's what we're here for.

Leanne

This article is general information only. It is not insurance or legal advice and does not take into account your personal circumstances. Every policy is different, so please speak with your insurer or broker about your own cover.

Sources

• Could your tenant's 'side hustle' be jeopardising your insurance?, Sharon Fox-Slater, Managing Director, EBM RentCover (Smart Property Investment)
• Tenants working from home: good or bad?, EBM RentCover (PropertyUpdate)
• Residential Tenancy Act 1997 (Tas), Tasmanian Legislation Online
• Residential Tenancy handbook, Hobart Community Legal Service
• Important notices: duty of disclosure and duty not to misrepresent, Gallagher
• Contents insurance, Moneysmart (ASIC)