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The title split of your property and creating new leases

by Raminder Uberoi — Posted on 24 October, 2018

Factors to consider for a Land Registry title split of your land or converting your property into separate flats

Update – Following a number of stamp duty related questions received in relation to title splits, we invited Suzanne O’Hara, author of the forthcoming publication A Practical Guide to Stamp Duty Land Tax in England and Northern Ireland to contribute to our most recent blog, Flat conversion, Stamp Duty Land Tax (SDLT) and claiming Multiple Dwellings Relief. This blog offers a good understanding on stamp duty liability and your entitlement to stamp duty reduction when title splitting and converting your property into self-contained flats with new leases.

Building new property on your land or selling a part of your land to developers via a Land Registry title split can be a highly profitable venture. Due to the increasing demand for new homes, more and more people with large gardens and plots of land are seeking to divide their freehold land and build new property. However, to do so requires a property title split. There are several factors to consider before you commence with splitting the title of your land or converting your property into lease flats.

Splitting a Property into two titles UK - What's the Process?

The vast majority of properties (both freehold and leasehold) in England and Wales are registered with a unique title number at the land registry. When you want to divide one property into several new ones, you would need to complete a title split, which divides your property into one freehold title and several new leasehold titles. These new titles have to be registered with the Land Registry and are then considered separate properties.

A title split is commonly done where someone who owns a larger property wants to divide their property into multiple new self-contained flats to sell or rent out with a buy to let mortgage, or where someone who owns a large garden wants to sell part of their garden to a property developer or neighbour.

Do I need to create new leases for the new properties?

Technically no, but depending on what you’re doing, it might be a good idea. If you’re splitting a property into flats, you’ll need to create new leases if you want the new leasehold properties to be mortgageable. Creating new leases is generally a good idea anyway as a lease will set out exactly what the freeholder and the leaseholder will each be responsible for, such as repair obligations and insuring the property.

If you’re planning on selling part of your garden, you don’t need a lease. You would instead need to complete a TP1 form which separates the part of your garden you want to sell from your property and transfers it to the buyer.

Creating a lease for the property does also allow you to exert some control over the property however. For example, you can include leasehold covenants which impact what the leaseholder can or cannot use their property for, such as preventing the leaseholder from using their property for commercial purposes.

What is the Legal Process for converting houses into flats?

The first step is to hire a surveyor to draw up a plan of each new separate property you intend to create. A good lease plan should contain a scale, a clear depiction of the property’s boundaries (including common areas if applicable) and include the property address on the plan.

You’ll then need to draw up leases for each new property you plan to create. These leases will need to set out what each property includes (such as whether the property comes with a parking space or a garden), what the freeholder and leaseholders will each be responsible for and information about any rights the leaseholders or freeholder will have over the property, such as rights of way. A property solicitor can prepare this for you to ensure that your lease isn’t missing any important terms.

Once you have the leases, you will need to make the application to register the new properties at the Land Registry. Once the new titles are registered, you will be able to mortgage, sell or let the new properties.

Before you can make the application to register however, there are a few things you need to take into consideration.

Mortgage Lender’s Consent for splitting the title

If you have taken out a mortgage on your property it is essential that you contact the lender and obtain their consent for the title split. This is because they have a financial stake in the land, so their willingness to approve the title split will ultimately depend on how much equity there is in the part of the land they retain a mortgage over. Your lender will therefore want to ensure that they will retain a valuable and marketable title to the remaining property following the title split.

Consent is normally granted by way of a document known as a deed of release i.e. the lender releasing the borrower from the lender’s charge over the part of the property being sold. Your solicitor will need to draw up the Deed of Release if the application for the title split is approved by the lender and this will be sealed by the lender. Consent of any second or subsequent mortgagee must also be obtained.

Your lender is likely to reject the title split if they believe it will significantly reduce the value of the part of the property being retained. Resultantly, you should seek the consent of your lender prior to making plans for converting your property into flats or selling part of your land to a developer or another third party.

If you intend to convert your property into flats, your lender will require you to grant individual leases which comply with their requirements.

Our title split solicitors can save you time in obtaining your lender’s consent for your title split as we are on the conveyancing lender panels for the majority of high-street lenders including Barclays, Halifax, HSBC, Nationwide, NatWest and Santander. Instead of having to instruct one of your lender’s solicitors, we can liaise with the lender on your behalf to obtain the deed of release and ensure that the proposed new leases meet your lender’s requirements which saves you time and money. See the full list of our lender panels here.

Freeholders cannot also be leaseholders

Landlord and Tenant common law stipulates that the landlord and Lessee must be separate entities. This is often seen when, for example, the owner of property may want to retain his freehold and leasehold titles in his same name, but this will not be possible and seen as void by the land registry. A solution is often to keep the freehold title in his personal name and grant a lease into the name of a limited company (wholly owned by the freeholder to retain control) or vice versa.

Property Obligations and Rights

Whether you are splitting the title of your freehold property or creating new leases, you will need to consider factors such as repairing obligations and rights of way and private access areas on your land. Parking and communal arrangements must be correct and will need documenting in the title and/or leases.

Planning Permission

It is also important to ensure that any new-build property or conversion to flats complies, amongst other factors, with local authority Building Regulation and Planning rules. If the property has been built or converted to flats most lenders will require a new-build structural warranty or professional consultants’ certificate.

Your local authority will consider any objections from neighbours. For example, if your property is in a conservation area the council may need to provide further consent before you can build. Therefore, it is best to obtain planning permission before commencing any work.

Complying with Restrictive Covenants

There may be restrictive covenants in place which prohibit or limit development on your freehold property, and could prevent a developer building what they want to on your land. If you are aware of exactly what the covenants say, then you will be in a good position to anticipate and deal with any problems.

Professional Consultancy Certificate (PCC)

Many lenders will not lend on properties which have been built or converted within the last 6 years without a Professional Consultant’s Certificate (PCC). The PCC confirms that a construction professional has checked that the building works taking place are being done to a sufficient standard and that the professional will accept liability for any damages that occur as a result of faulty building work for up to 6 years after the construction has finished.

If the conversion was completed more than six years ago, you will not need a PCC.

Will I need to pay tax on a title split?

Depending on the circumstances, Stamp Duty Land Tax and Capital Gains Tax may be payable if you sell any of the newly created properties. However, in some circumstances, the property could be eligible for Multiple Dwellings Relief. Read more about the potential tax implications of a title split on our website.

It is highly advised that you speak to a tax advisor to find out the extent of your tax liabilities before proceeding with your title split.

Can I title split my loft space into a separate flat?

If you own the freehold of the property, you would simply follow the general title split process for converting properties into flats as described above.

If you’re a leaseholder, you’ll firstly need to check your lease to find out whether you actually own the loft space at all – some leasehold properties do not include the loft space. You’ll also need to check whether your lease includes the loft space in the demise (demise being the property that you own) or whether the lease grants use of (or access to) the loft space. If you have the right to use or access the loft, that doesn’t necessarily mean it belongs to you.

If your lease does not include the loft space, you will need to ask your freeholder for a deed of variation which extends your property’s demise to include the loft – be advised that your freeholder will likely charge for the deed of variation as they’re losing some of their own property by adding it to your demise. Your freeholder will also need consent from their own lender.

Even if you do own the loft space, you will likely need to speak to your freeholder anyway to obtain a Licence for Alterations. The majority of residential leases contain provisions which prohibit the leaseholder from making any alterations to the property without the lender’s consent. You will therefore need your freeholder to provide their consent to the changes by way of a licence for alterations. It is important to get the licence for alterations even if your freeholder gives their informal consent.

You will also need to obtain a deed of substituted security from your lender before you can split your title to separate your loft space from the rest of your property.

What is the title split process of transferring a garden, parking space or garage to someone else?

The process will depend on whether you own your property on a freehold or a leasehold basis. If you own a freehold property, you would separate the garden, parking space or garage from the rest of your property using a TP1 form, which separates the part of the property you want to sell from your title and adds it to the buyer’s title – you can read more about this process in our blog post on selling part of your garden. The seller will need their lender’s consent to split off part of their property by way of a deed of release which releases the lender’s charge from the area of land that is being sold, while the buyer will need to obtain their lender’s consent via a deed of substitution (sometimes called a deed of substituted security) which secures their lender’s charge over the new land they have purchased.

However, if you are a leaseholder, the process is a little different. First, you will need to check your lease to confirm whether you own the land you want to sell. If you do own that land, you will then need to get your freeholder’s consent to the transfer by way of a deed of variation of lease. The deed of variation will amend your current lease so that it no longer includes the land you are removing from your title and is then registered with the land registry to add the land to the buyer’s title. If the buyer and seller have a mortgage over their properties, they will need to both obtain a deed of substituted security from their respective lenders to discharge and register their lender’s charge onto the amended properties.

Some solicitors incorrectly try and lodge a DS1 form on behalf of the seller, which would (in theory) discharge the seller’s mortgage from the property entirely. This is not the correct procedure and the Land Registry will not accept a DS1 form as sufficient evidence of the transfer of charge. The seller will need to obtain a deed of substituted security from the lender – for this reason, the seller must instruct a solicitor on the lender panel for their chosen lender, who can confirm with the lender that the transfer in property will not infringe on their lending requirements. We are on the panel for almost all high-street lenders and can obtain your lender’s consent on your behalf with ease. See the full list of our lender panels here.

Do I need a solicitor for my title split?

You will need a title split solicitor to assist with the creation of leases and registration of the new properties, or the registration of the TP1 form if you’re selling part of your land. A title split solicitor will:

  • Ensure your title plans are compliant
  • Check your freehold property’s title to ensure there aren’t any leasehold covenants which could pose a problem
  • Obtain your lender’s consent for the title split
  • Draft the leases for you, making sure that the lease adequately fulfils your needs and does not include any onerous obligations on your part
  • Transferring the freehold or leasehold title(s) into yours or another legal entity’s name
  • Register the new titles with the Land Registry
  • Register the TP1 form for you if you’re selling part of your garden

How Starck Uberoi Solicitors can help

Starck Uberoi have a dedicated team of solicitors that specialise in creating new leases for flat conversions following a property title split. We offer an end-to-end service by also advising on stamp duty reductions and specialist mortgage advice where multiple leases are granted.

To book an appointment, call 020 8840 6640 or email solicitor@starckuberoi.co.uk. Our offices are based in Brentford, Ealing, Richmond, London Belgravia and Canterbury, all within easy reach by public transport. Our partner, Raminder Uberoi, can also provide a Notary Public service at any of our London offices.

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About Raminder Uberoi

Raminder is head of the property department and his practice includes acquisitions, sales, financing, planning, development, landlord and tenant matters and corporate-related property transactions. He specialises in all aspects of commercial and residential property continually developing successful and practical client-focussed strategies. He draws on his wide experience to achieve tailor-made solutions for his clients’ commercial and financial needs.