Should you dismantle your workstation? Home working and the “no trade or business” covenant

In a new article, senior associate Laurent Vaughan explores whether working from home can breach a residential lease’s “no trade or business” covenant and suggests that incidental home working is permitted, while running a business from home may still violate the lease.

I recently acted for a freeholder in a statutory lease extension where an interesting amendment was proposed. The leaseholder’s solicitor sought to qualify the well-established covenant “not to carry on any trade or business at the property” by expressly allowing the leaseholder to work from home.

In my many years of drafting residential leases, I had never encountered any request to modify this covenant, even in our post-lockdown world where hybrid work patterns have become the norm. I swiftly rejected the proposal since, in my view, such a qualification is entirely unnecessary.

Still, the amendment raises a practical question: with millions of leaseholders in England now working from home for at least part of the week, should they fear enforcement action by their freeholder?

To answer this question, one must first understand what the covenant prohibits and how it has been interpreted recently.

The covenant prohibiting “trade or business” has long been a standing feature of residential leases. On its face, it seeks to prevent a leaseholder from using their home as “business premises” – essentially as a storefront.

That seems pretty clear. But what about other activities that have now become commonplace, such as a leaseholder logging onto a work laptop, virtually meeting colleagues, and making work calls?

Or what about more complicated cases, like self-employed workers who are using their homes to run virtual storefronts?

The Upper Tribunal’s decision in Hodgson v Cook (2023) is currently the leading modern authority on whether the rise of home working has altered the interpretation of this covenant.

In that case, Mrs Hodgson had relocated her beauty therapy business to a cabin in her garden, where she saw multiple clients each day. Although she obtained retrospective planning permission, she remained in breach of a restrictive covenant prohibiting trade or business. She therefore applied to the Tribunal to modify the covenant, arguing that it had become outdated because home working had become commonplace since the COVID-19 pandemic.

The Tribunal firmly rejected that argument, drawing a clear distinction between home working as part of a policy directed by an employer and running a business. The Tribunal held that the covenant had not become obsolete and that the rise of home working did not dilute its meaning.

Incidental home working is currently safe. Leaseholders working from home for one or two days a week as part of their employment have no reason to fear enforcement. This is not, and has never been, the type of activity the covenant seeks to restrict or prohibit.

Business use is not, however. Leaseholders who attempt to run a business from their home will not be shielded by changes in modern hybrid working practices.

No leaseholder needs to worry about violating the “no trade or business” covenant if they are simply logging on from home a few days a week. Such activity falls squarely outside the scope of the existing covenant, which remains robust and undiluted. So, for now, there’s no need to dismantle those workstations.

Laurent Vaughan is a senior associate in the residential property team. He  has comprehensive knowledge of enfranchisement cases and has experience advising in connection with the Leasehold Reform Housing and Urban Development Act 1993 and Landlord and Tenant Act 1987.