Tenant attempt to go from Residential to Commercial lease.

5 Replies

Hello BP,

I just rented this house and the tenant is presenting this situation which it is just starting to develop (wasn't it suppose to be ALL passive income once rented?)....

In our contract we specifically state that they agree to "use the premise ONLY as a residence for themselves and their children named in the contract".

Tenant casually asked me if I did not mind if she took care of some of her friends kids to make some extra money. I verbally told her (while distracted on some other matter) that I did not mind as long as there was no insurance issues (meaning that she was insured and took 100% responsibility of any injury in the house as also stated in the contract).

Today she called me to ask if I need to see the income of her friend (what I think is her business partner) since she will be helping her out to take care of the kids...

To summarize the post... my concern is that (all that not informed directly) they are attempting to form a Daycare at the house and I informed that before they move forward with their plans. The following needs to happen:

1. They need to do all the research for what is required to run a daycare in Cobb County, GA. (since a day care is not my area of competence no do I intend to make it so). Some issues that may come are:

a. Zoning issues

b. Additional cost for my property insurance

c. having to re-due the contract to include her partner and the approval for commercial use.

d. not to be greedy, but I may have to increase the rent for the risk increase

2. Once they provide me all documentation, I will have to spend some time verifying the information provided and doing some additional research to close any gaps to include calling my insurance company.

3. Once all this happens I will have to translate this to cost and informed them if:

a. I can authorize them to run the daycare with the applicable additional cost

b. That we will not doing due to the risk or the property not meeting certain gov. requirements.

Please share your thoughts on what other things would you consider in my situation...

Thanks

(wasn't it suppose to be ALL passive income once rented?)....

Surely you jest, sir!

In your position I think YOU should check zoning regulations and see if its even allowed.

Did this conversation happen before or after the lease was signed:

Tenant casually asked me if I did not mind if she took care of some of her friends kids to make some extra money. I verbally told her (while distracted on some other matter) that I did not mind as long as there was no insurance issues (meaning that she was insured and took 100% responsibility of any injury in the house as also stated in the contract).

If its after, I think I'd push back and say, no, this is a residence that's been rented for them to live in. Its not a commercial location and wasn't rented to be a business. If it was before the lease was signed, they might have a case that they expected to be able to do it and now you're reneging.

Jon Holdman, Flying Phoenix LLC

What Jon said and you also better consult with a RE lawyer first. By presenting terms, questions, and instructions you may be putting yourself at legal fault/liability as well as your tenant. Hopefully Wayne from Wyoming will provide his expert legal opinion.

I am sure that your laws are more restrictive than mine, but I had this happen once to a rental. They had to get a special permit from the town, and I required a special insurance policy of $500K before I would consent. luckily for them the building had formerly been a commercial building and ample room, parking and facilities.

I meant Jerry from Wyoming, he's the expert, sorry Jerry.

Search this topic on BP.... there is more on this topic in some other threads that will be worth reading. Look for discussions on running a business out of a home too.

We had a tenant try to establish an unlicensed daycare in a duplex unit once. We found out about it when they asked us to build a six foot fence around the backyard so they could get the property approved for such a business. We did not allow it.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83