Tenant runs a daycare from rental property.

10 Replies

I have a potential tenant, single mother who plans to run her daycare business at our rental property. She has up to 5 children on any given day all under the age of 4yrs old. What are the pros vs. cons?

You will have to repaint all the interior walls, and probably replace all the flooring, unless it's tile or something hardy.

And probably the blinds will need to be replaced.

And it will probably smell like a romper room in there.  lol

Check with your CC&Rs to make sure that she will be allowed to run a business in a residence.  There are some restrictions that prohibit a business that would require extra cars (parking issues) and noise (screaming children).

Also, you may want to check with your homeowner's insurance to make sure that you will still be covered for any issues resulting in her running a business out of your house.  THe liability you are adding to your plate by doing this is a little more than I would want to take on.

Please tell me the property doesn't have a pool....at least that.

Most bylaws do not allow the operation of a business out of a residence. My lease does not allow tenants to operate a business from my rental property.

It will add far too much wear and tear and likely cause issues with neighbours. There is no reason to accept applicants that require any special considerations. If someone wants to operate a day care they should buy their own home.

No reason to take on the additional liability unless they are your last option on earth. A vacant unit would be less costly and lower risk.

My lease also has a provision that you can’t run a business out of the home. I agree with Thomas and the others wear and tear plus issues with neighbors makes this tenant no go unless they are a last option out there.
Good luck.

@Brenda Budzinski , you asked for the pros and cons.  I would ask you the same exact question, what do you see as the pro to you renting to her versus someone that doesn't intend to run a daycare in your property?

@Brenda Budzinski , I see ZERO Pros for you, the property owner. I see only Cons, mainly stemming from liability issues. 

I had someone who wanted to run a daycare out of my rental, too. I said no, and never regretted my decision. Too many potential issues.

Mindy Jensen, Real Estate Agent in CO (#FA100049656)

@Brenda Budzinski   I will try to be a little more positive than some of the others but I am sure it will have the same result.

Normally when someone plans to run a business out of a home for example... transitional housing... sober living... assisted living... habilitation... they pay rents that are at least twice as high as other tenants.  They also have business insurance that would cover most issues.

I have family members in the daycare business.  The standard is an insurance policy with a $2,000,000 per child per incident max.  That policy is just if the owner or employees did something that was a problem.  There is often a separate policy to cover personal injury claims where kids simply get hurt, which if you have kids you know happens.

Renting the house out for this purpose would certainly violate the terms of any mortgage you have.

If all those issues can be dealt with then the pro would be your rent would be at least twice the standard rent for a rent house.

Like the others have said, this is a large amount of liability to take on given that the tenant's use of the property is likely to be pretty extreme. You'd have to Considerably raise rents to offset that, if you're even in a legal position to do so (insurance as a start, and do you have a lease that's legal for this sort of tenant?). This is probably a non-starter and you'd have an easier time with a standard tenancy.

Peter MacKercher, Real Estate Agent in MO (#2010004223)
(314) 210-4414

Brenda,

I would suggest contacting your Insurance agent and assessing the impact of a daycare business on your coverage and rates.  We represent over 2 dozen Insurance companies and none will allow for a daycare business.  Even though this is a rental property I would guess that you will run into the same issue.  You could seek out a commercial Insurance policy for the building.  The number of companies that would write it are limited and the premium will be higher than your current policy and possibly much higher.   If you do allow this, I would strongly advise that you review the lease with an attorney and make sure that it includes the necessary clauses to require them to have proper coverage for the business.  Also, be sure to get copies of the policy.   Some possible things to require are:

- Have tenant name you as an additional insured

- require 30 day notice of cancellation

- include the wording that if they lapse coverage you can secure coverage at their expense

Other possible clauses that the Attorney may suggest are:

- waiver of subrogation (their company can not come back after you to recover a claim they paid out)

- primary and non-contributory (the tenants policy is primary in a loss)

Things you should check out include:

- fire code requirements for that type of business

     (ie.  fire doors, hardwired smoke detectors, extinguishers, etc.)

- disabled access requirements

- fencing requirments

I went through this with someone contemplating allowing a full day care on the first floor of a two family and they determined that the cost to make the building compliant outweighed the additional rent.  Hope this helps

The purpose of screening applicants is to find reasons to reject their application. A day care is more than adequate reason to reject.

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