Split 1 Title Into 3

by Readers Question

3 years ago

Split 1 Title Into 3

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Split 1 Title Into 3

I need advice on the best way to split 1 title into 3 and keep hold of the split units. As far as I’m aware, I cannot be the freeholder and leaseholder at the same time. The property was granted permission to be set up as 2 x 1 bed self contained units, and 2 x bedsits in 1995, although planning permission was never granted. The vendor recently, due to pressure from the council turned the 2 x bedsit into a 1 bed self contained flat, so the property is now 3 x 1 bed self contained flats being sold on 1 title.

I plan to refurb each unit and obtain the planning permission to remortgage each flat on its own title. I’m buying this property using a mix of bridging, my own funds , a personal loan and secured loan – the bridging loan equates to 25% of the purchase price.

I’ve been advised the best thing to do is set up a limited company (possibly a SPV) to buy the property and then when I remortgage the limited company will be able to issue the leases to myself (the price I’ll be buying each flat for falls up the stamp duty threshold at least eliminating that cost). What I would like to know is if this is the best solution for this issue and will mortgage companies have a problem with me buying the leaseholds from a company I am a director of?

Many thanks

Jimmythree

Comments

Neil Patterson

3 years ago

Hi Jimmy,

You have complicated issues here that are all linked.

I do not have enough information or am qualified to answer these. However, I am concerned that all planning issues are considered and resolved before you contemplate exchanging.
I would need a good solicitor see >> http://buytoletconveyancing.co.uk/contact-us/

It is not clear how you are financing the property, but you are correct that many lenders do not like a leaseholder also owning the Freehold, but your are considering splitting that with an SPV.

There are also complicated tax considerations that are dependent on all your personal and business circumstances. The question of investing in personal name or company name often comes up, but you do need qualified and insured tax advice. we use >> http://www.property118.com/member/?id=452

Carol Thomas

3 years ago

Hi Jimmy
A while back I bought a leasehold flat (1 of 4). I also purchased the freehold at the same time. The other three leases were held by other individuals. I collected maintenance payments and arranged any repairs etc that affected the properly as a whole. I had no problem obtaining a mortgage. When our flat was sold, I sold the freehold to the person who bought ours, all very straightforward. Whether or not things have changed in the last seven years, I am unable to comment. Hope all goes well for you.

Ian Ringrose

3 years ago

Your gain nothing (apart from costs) from splitting unless you wish to sell the flats to different people.

There are lenders that will land on small blocks of flats but they expect all the flats to be on the same freehold.

Lending don't seem to like you owning all the flats in a block on separate leases, even if you put 1 in your wife's name for example.

Martin Weaver

3 years ago

We have a similar situation, but my wife owns the freehold and i own the leaseholds, this caused has us no problems with buy to let mortgages etc
talk to your solicitor

Hi Jimmy
I'm not sure why are considering an SPV. You would have to set up a company to create an SPV as an SPV is a subsidiary of its parent . This is a complex scenario and you really do need to seek the appropriate professional advice before going to far.
In simplistic terms:-
If you setup a limited company you will need to have at least one director and one secretary. Whether you raise finance through the limited company, or privately you'll need to decide. Once you have setup a limited company you can then sell the freehold of the property to the limited company (this does of course mean the limited company will own the property and not you, even though you own the company! and the company must have sufficient funds to purchase the freehold from you, which may mean the company raising finance (or you could make a directors loan to the company). It will also mean that you can take a salary and/or dividends from the company as any sale of leases and rental income will belong to the company, not yourself (even though you own the company), and this is how you will release capital from the company. As the limited company will own the freehold, it is able to sell leases to new purchasers.
This is a very complex area and does need a knowledgeable person to steer you through all the tax, accounting, personal and legals areas.

3 years ago

Thank you for your responses guys I have a meeting tomorrow with a property accountant so hoping that will shed more light on the subject but I think your right Ian as I'm not planning to sell any units theres no benefit to split at present.

John Simpson

3 years ago

You are allowed to own the freehold and the leases, but as a freeholder you're not allowed to grant yourself a lease. What you do is transfer the freehold over to a ltd company wholly owned by you (setting one up costs circa £150). The Ltd company then grants you the 3 leases. You then transfer the freehold back to yourself.

Colin McNulty

3 years ago

Reply to the comment left by "Alphabet Pictures" at "10/02/2015 - 22:09":

> If you setup a limited company you will need to have at least one director and one secretary.

IANAL but I don't believe that's true any more. AIUI the Companies Act 2006 removed the need for a company secretary, so it's now possible for a private limited company to only have 1 director.

From the OP, this sentence confuses me as it seems self contradictory:

> "The property was granted permission to be set up as 2 x 1 bed self contained units, and 2 x bedsits in 1995, although planning permission was never granted."

Either it was granted permission or it wasn't, I'm confused as to which? Either way, again IANAL but AIUI after 4 (or possibly 10) years it becomes lawful use anyway, although that might be complicated by the recent change of the 2 bedsits to 1 self contained flat:

http://www.hertsmere.gov.uk/Planning--Building-Control/Planning/Planning-applications/Planning-application-forms/Lawful-development-certificate/Lawful-Development-Certificate-Existing.aspx

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