I don't buy your innocence here. I've been leasing houses for ~10 years now during and after college. The leases have always required a mix of landlord approval for subletting, banned running a business from the house, and prohibited occupation by non-lessees.
Here are two clauses from an older lease[1] I happen to have in my desk:
* Tenant shall not assign this Agreement, or sub-let or grant any license to use the Premises or any part thereof without prior written consent of Landlord.
* The premises shall be used and occupied by Tenant and Tenant's immediate family... exclusively, as a private single family dwelling.
Your faux innocence is pretty annoying actually. You were abusing the property for commercial purposes and you're surprised he didn't give you a friendly phone call?
1 Looks like the lease was originally snatched from www.academichomes.com/downloads/ExampleLeaseAgreement2.doc