In this blog post, Sunidhi, a student of the Rajiv Gandhi National University of Law, Patiala writes about the licenses that are required for setting up a guest house, hostel or Bed & Breakfast in India.

Introduction

With the changing scenario, the need for traveling has also increased for the purpose of the education, research, job, tourism, etc. With this arises the problem of overnight stay for outsiders, especially for those who cannot afford expensive hotels. This problem has been solved by the upcoming business of paying guest facilities, hostels and Bed & Breakfast (B&B) that provide affordable accommodation for overnight stay to travelers at affordable prices.

Setting up a guest house, hostel or B&B is a very lucrative business today because of two main reasons. Firstly, it is a source of extra income to meet the ever increasing expenses with judicious use of property. Secondly, the hotels require quite a lot of investment but in these accommodations, investment requirement is quite less. Also, this business adds to the development of the local economy.

Preliminary

The pre-requisite for starting this business is a sound business plan. The investor needs to chalk out the fund requirements for the business; sources to procure the funds; whether the venture will generate profits for the investor and if yes, then whether the return is satisfactory or not, etc. Once it is estimated that the plan will earn profits worth the investment, then the investor should look out for the best and cheapest possible ways to meet the requirements of the traveler for long term survival in the market. For longer survival in the business, it is important that the hostel should be in good working condition, comfortable and hygienic and should help earn a good profit margin for the owner.

The locality of the business has a great impact on its survival. Larger the number of transit facilities available near the accommodation, the more will be its demand. It should be located near landmark places where a mass working system of transit is available as no traveler will prefer walking for a long distance. A location that is close to transit points and tourist destinations is most desired.

Services

The more the number of services provided, the more attractive it will be for the travelers. The investment in services is directly proportional to the profits the business will earn. Facilities like comfortable beds, healthy & hygienic food, effective complaint redressal mechanism, etc. adds to the merits of the business along with higher chances of long-term survival. Although the paying guest, hostels, and B&B require less capital, manpower and resources in comparison to hotels, these accommodations also need to survive the competition. This can be dealt by providing services like:

• Free Wi-Fi
• Booking services for conveyance
• Drop and pick facilities at cheaper rates or free of cost
• Complimentary snacks
• Tour guide books, etc.

These facilities give an edge to the investor making his/her business distinguishable from competitors and creates its demand during a time of cut throat competition in India. These services make such accommodations “home away from home” and add to the satisfaction level of the travelers.

Legal Requirements

No business can work until and unless it has been legally recognized. So, to stay in business for the long run, the owner is obliged to meet all the legal requirements and get required licenses from appropriate authorities. A new start-up in this business has to fulfill these legal requirements to work freely.

Although no specific law has been framed by Central or State government for this but the investor needs to obtain a trade license from local authorities to initiate the business. As the local law governs this business, so it varies from place to place. For e.g. in Bangalore, it has been notified that Paying Guest (PG) accommodations that host more than 12 people have to obtain a trade license necessarily from the Bruhat Bengaluru Mahanagara Palike (BBMP). The Palike will consider them non-residential property and tax will be collected accordingly.[1] Similar rules apply to other cities.

The reason being, if a property is used for commercial purpose, then it has to be taxed at commercial rates. The owner cannot take advantage of lower domestic rates for commercial purposes. They are provided electricity, water, etc. at commercial rates. The license has to be renewed every year. After obtaining the trade license and registration, the local self-governing body such as Municipal Corporation has to be informed, etc. Then, the local self-governing body inspects the place and examines the documents. If it is satisfied, then it issues a No Objection Certificate (NOC).

It should be kept in mind that if the hostel, PG or B&B has to be opened in a co-operative society, then the consent of the co-operative society is an important requisite, otherwise they can object which might result at the end of the business before it even starts properly. Also, a formal notice has to be sent to the police containing all the details such as name, location, etc. of the hostel, PG or B&B. This information is required by police because of security issues and the mandate to record the number of hostels in their locality.

Along with this, the investor is required to obtain some other permits, for example, health trade license permit from the appropriate department regarding the hygienic food and environment, fire safety insurance from fire department regarding the safety measures installed in the building in case a fire breaks out, environment clearance from Pollution Control Board, clearance from electricity body regarding electricity supply, etc. If alcohol is served at the premises even as a welcome drink, an alcoholic license has to be obtained. The investor is also required to fill a form containing details of the tenant and submit it to the nearest police station. The investors are also required to file an affidavit stating that all the formalities have been met and are true to his knowledge. Once all the documents are submitted the hostel, PG or B&B will be registered, thereby, making the establishment legal.

Footnote:

[1]Available at http://www.newindianexpress.com/cities/bengaluru/Now-Trade-Licence-to-Run-PG-Hostels/2013/11/30/article1919730.ece, last accessed on July 11, 2016, at 3:17 p.m.