Many of us are natural entrepreneurs. That’s why several news articles recently that have highlighted the opportunities for making money from your home have piqued our interest. They include:
However, what we have been very concerned about is the virtual complete absence in such advice of the need to think carefully about the insurance implications that could be associated with it. In some cases, if the advice in such articles was adopted without any insurance action, you may be putting your property and contents cover at risk.
The Potential Problem
Insurance providers offering traditional private individual home contents and buildings cover do so on the basis that your property is used exclusively for your own residential and recreational purposes. It’s critically important to recognise that your existing buildings and contents cover may become invalid the moment you start using your property for other purposes, including:
- generating rental income (whether letting the property out in total or just a room);
- running a business;
- warehousing (which is what storing other people’s property for reward actually is);
This isn’t just a question of semantics because it cuts to the heart of what’s called the risk profile of your property and its use.
For example, let’s assume you’re charging someone to store their goods in your otherwise unused garage. On a visit they unfortunately slip on some oil on the stairs down and break their leg. If they sue you for damages and are awarded a large sum due to your negligence in maintaining your property, your owner-occupier property cover typically may refuse your claim.
That’s because you have become a de-facto commercial business and no longer just an owner-occupier of a home.
The position may vary between cases.
For example, if you start renting out a room of your property, whether you like the term or not, you will legally have become a ‘landlord’. Unless you purchase pertinent landlords’ insurance, your property and contents may immediately become effectively uninsured.
This also applies if your property is used as an Airbnb rental.
Any articles which suggest using your home for commercial enterprises without considering the insurance issues in advance are highly irresponsible. We can’t stress strongly enough how important it is to contact your insurance provider or ourselves for a discussion before taking any steps that would change the use of your property.
If you’re planning to start using your property to generate some extra cash, it’s worth being enthusiastic and positive but also to focus on the fact that you’re becoming a business. You’ll need to be hard-headed and think like a business person.
For example, there are other issues to consider as well as those associated with just property insurance cover:
- if you’re letting property in full or part, depending upon where you live in the UK it may be mandatory for you to register with the local authorities (who may also require evidence that you have appropriate insurance);
- your income will need to be declared to HMRC ;
- if customers visit your home, you may require public liability cover for business professionals;
- be cautious about your legal and other liabilities arising from letting out your home for others to store their items in or conduct a business from. You might, for example, be called to account by the police wanting to know why illegal substances are being stored in your garage and “I didn’t know” might not be an acceptable explanation.
Nothing in the above should be interpreted as dismissing out of hand the opportunities your property might provide for income generation. Many of the ideas in the recent spate of articles on the subject have real merit.
However, this isn’t something to be dived into head-first without appropriate research and the guidance of experienced parties. Take a little extra time, make sure your bases and covered and thereby avoid any problems downstream.