Converting or sub-dividing a single freehold building into two or more self-contained units is becoming ever more popular particularly in the current economic climate.
We have noticed that as a consequence of the depressed property market, many landlords and investors have realised that there are several advantages to dividing a freehold house into several units. A process known as sub-division.
The main advantage of splitting the title in this way is that the combined value of the individual units is often far greater than the original value of the freehold itself. This allows investors to maximise the value that can be realised from a property by way of sale or re-mortgage.
However, this process can create problems for the inexperienced and for those unaware of the legal consequences. In particular the majority of Lenders frown upon single freehold units being created without a proper scheme of maintenance which is clearly set out in corresponding leases. This defeats the object of sub-division.
Ensuring Good & Marketable Title(s)
In this situation a specialist property solicitor will be required to draw up new leases for the units. They will ensure that the new leases comply with all legal stipulations, such as those contained in the Council of Mortgage Lenders Handbook (Part I). These state:
“The property must have all necessary rights of support, protection, and entry for repair as well as a scheme of enforceable covenants that are also such that the subsequent buyers are required to enter into covenants in identical form”
In other words each self-contained unit should have a lease which complies with the lenders requirements which fully sets out the rights and obligations of the tenant and landlord. This is the only way a property investor can ensure that the title is good and marketable.
The leases created will lay out the contractual obligations of both the landlord and tenant. This will include the leaseholders obligations and any restrictions and conditions regarding the use of the premises. They will set out the landlords obligations which could be to maintain the structure of the property, as well as any common areas and to put in place appropriate buildings insurance. As such it is imperative that the leases are drafted correctly. It is therefore important to seek appropriate legal advice at an early stage to avoid problems arising at a crucial stage in the transaction.
Our Expertise
At Hallmark Solicitors we aim to ensure that the leases we draft adequately protect our client’s interests, and that demarcated lines of responsibility and liability are established between the parties. Therefore when questions arise each party knows their rights and obligations.
We are highly experienced in advising in Property Development matters and Commercial Property Transactions and advise clients across Yorkshire and the Humber. Our philosophical perspective is that prevention is better than the cure. Sound legal advise acted upon in a timely manner can save landlords running into avoidable problems and exorbitant cost in the long run.
TOM HERD, LLB (Hons)
Legal Advisor
