I have a bit of experience with this. I rent out my basement apartment. It is legal/registered/etc so I just told my home insurance what's up and they were fine with it, but added about $20/month to my premium. I think it's mostly to cover the added replacement cost in case my house were to burn down and they had to pay for the rebuild, plus a bit for the added liability. Tenants are still required to buy their own contents insurance if they want it.
On the other hand, my dad is a full time property owner/manager. One of his buildings has a 2-car garage he rents out. Due to zoning, it's important that the space be used exclusively for storage. If people want to use it to repair cars it might be considered commercial use which might lead to fines and headaches.
Something else to consider is that some tenants will be slobs, which may be fine with a residential rental, but when we start talking about hazardous waste like used motor oil it can be a serious concern. You do not want to have to deal with ground contamination cleanup. Since he sounds like a good guy, and you're living there to keep an eye on things, you'll probably be fine. Just something to keep in mind.