How to convert townhouse into flats?

Hi Christian,

To start with you will need to split the property into two Leaseholds with you owning the overall Freehold. You will need a good solicitor for this. please see >> http://buytoletconveyancing.co.uk/contact-us/

Then you need to consider how the property will be managed for things such as maintenance and block insurance cover.

There will be Building regs and fire regs to comply with which an architect or Surveyor will be able to give guidance on.

Do you already have finance on the property as you are now changing the lenders security and this will need to be reconsidered?

First you need planning permission to split into two habitable units. You should get a planning consultant or architect (more expensive) to assess viability against local planning guidance and then, if positive, submit an application. If this is approved you should get building regulations drawings / specification drawn up (and approved) and then use this to get quotes from builders.

Beware of any limitations in your mortgage regarding alterations and developments. Many lenders do not even permit second kitchens, for instance.

You say that you received planning permission to install a kitchen - was it in an extension? If not, it sounds like permitted development (i.e. no planning required).

It is worth considering whether you can first extend the building using permitted development rights (as opposed to requiring planning permission) before getting permission to turn into flats, as you may get significantly larger flats as a result. Much of what is allowed under permitted development would not be approved under planning permission, and you lose your permitted development rights once you have split into two units.

Leaseholds are the last thing you need to worry about once you are ready to sell. If you are keeping one of them, you will only need to create one lease for the part you are selling. You cannot own a lease and be freeholder so you will retain the freehold of the rest of the building (including the common parts and the retained flat). Or you could create a second leasehold held by another entity (e.g. jointly with a partner) but depending on prices you may need to pay SDLT upon its creation.

A big cost that no one thinks about is utilities - they charge infrastructure charges for all new habitable units.

Reply to the comment left by "Neil Patterson" at "03/09/2015 - 10:56":

hi Neil, thanks for comments.

Re financing, I could finance the development with my own cash, but the property is mortgaged and I do not have any knowledge if my lender will approve the development. Based on your experience, what shall I do about this issue ? Is it possible that perhaps the lender will approve the development and perhaps allow me to split the current mortgage according to each of the new property ?

Re creating the 2 leases, what is the magnitude of the costs involved ? How about other legal costs such as to create 2 addresses, 2 legal titles etc ?

Re this whole issue of creating 2 apartments in a relatively small building (140sqm), is this something unusual which perhaps will lead to problems when trying to sell one of the leasehold apartments ? Would potential buyers be put off by having to be involved in the management of the freehold (if the leasehold comes with a share of the freehold) or to be at the 'mercy' of the of the other leaseholder who owns 100% of the freehold ?

thanks

Incidentally, have you considered three units (one on each floor)? Obviously I have not seen the building but if possible it is usually economically worthwhile.(ETA I've just seen your reply above - so probably not).

Also, be aware that if you retain the second flat as part of the freehold (no lease), this will significantly decrease the number of lenders available to you.

Reply to the comment left by "Dr Monty Drawbridge " at "03/09/2015 - 11:17":

Thanks Monty for the comment.

The small downstairs kitchen was installed in one of the existing rooms, i.e. no extension. I think you are right, no planning permission was needed (just building regs control). Point taken about considering to extend first, then create the lease.

Regarding the utilities costs, we are talking here about separate gas-electricity drawn to the ground floor unit. Do you have any idea of the magnitude of the costs ?

many thanks

Reply to the comment left by "Dr Monty Drawbridge " at "03/09/2015 - 13:54":

Yes, I have thought about 3 units rather than 2. Currently the building requires relatively little building work to split it into a ground floor studio flat of around 33sqm and a further larger flat of around 90sqm on the upper floors. The work would comprise entirely of minor partitions to the ground floor + new kitchen. There would be no work at all to the upper levels ! However, if I were to produce 3 flats then there would be substantial work to the upper levels (essentially the stairs have to be moved, partitions redone, bathrooms redone, ugh). All in all I am not sure of the cost pay-off.

Back to your earlier comment, if converting into 2 flats with me retaining one of them as part of the freehold, why would that limit the number of lenders I have available ?

thanks

Reply to the comment left by "Cristian Stoian" at "03/09/2015 - 14:06":

"Point taken about considering to extend first, then create the lease."

It's nothing to do with the lease timing. You need to extend under permitted development before you get permission to turn into flats (but you need to be fairly confident you can get permission for flats). That way you could, for instance, have a 1 bed flat instead of a studio - much more valuable.

I'm out of touch with new utility infrastructure costs.

Reply to the comment left by "Cristian Stoian" at "03/09/2015 - 14:35":

Don't kid yourself about the small amount of works needed. To meet new building regs you have to consider bringing the entire external structure up to current thermal insulation standards (insulation on all external walls, double glazing, insulated roof), fire compartmentalisation between rooms and between flats, sound proofing, protected escape routes, etc.. It is much more difficult than it used to be (and rightly so - too many crappy, unsafe conversions were being built).

Re lenders, your property will be freehold subject to a lease demising part of it to another person. Many lenders just don't like it. I've never truly understood why. Probably just because it is a bit unusual.

Quite apart from planning permission, you will need to do a lot of work to meet the building regs, especially for soundproofing between flats. I have done this and because it is a conversion you will need to pass a sound and vibration test after the work is done rather than do the work to an agreed specification. Typically soundproofing will mean installing new lowered ceilings with insulation and potentially drylining solid walls and obsessively sealing any gaps. You will also need separate utility supplies to each flat and will need to ensure that any wiring and gas installations are up to current standards.

If the flats are over 3 stories you will also need a hard wired Fire Alarm system, plus emergency lighting and 1 hour fireproofing on the means of escape - which means fire doors with door closers and enclosing the stairs with fireproof materials, you will also need fire escape windows (that open wide enough at the bottom for someone to climb out) in most rooms.

I would be very suprised if your morgage provider approved, so you would probably need to look at alternative finance.

If you make the flats leasehold you will need to mortgage them individually. If you keep the additional flats and rent them out you can keep the freehold but you will be looking at a specialist lenders such as paragon as the building for morgage purposes will be classed as an HMO/conversion as its not a new build block of flats.

Having said that 3 leasehold flats should be valued much higher than a single house so its worth getting quotes and doing the sums.

If I am right in thinking you now have 2 kitchens in the property you may find you have problems remorgaging or selling it as a single house.

Reply to the comment left by "Darlington Landlord" at "03/09/2015 - 16:23":

Lots to think about, thanks for info

Re your last para, "If I am right in thinking you now have 2 kitchens in the property you may find you have problems remorgaging or selling it as a single house". Installation of the 2nd kitchen did not require planning, just meeting the building regs. It can easily be removed in no time at all (it is very small). If simply remove it the room then becomes as before, would that be enough to avoid any problems if I decide to sell as a single house ?

many thanks