Creating a New Leasehold Title
If you own a freehold property and plan to convert it into separate flats to sell or rent, you must go through the legal process of creating a new leasehold title.
This is a necessary and complex step that ensures the new property can be legally bought, sold, or mortgaged.
Why split a freehold title?
The main reason to split a freehold title is to increase a property's value. You can do this by converting a single building, such as a large house, into multiple self-contained flats that can then be sold or rented separately.
By creating new leasehold titles, you give yourself several opportunities to generate income:
- Sell the new leasehold titles and retain the freehold, which can provide a continuous income stream from service charges.
- Become a share of freeholder, sell one of the leasehold titles, and keep one for yourself.
- Sell both the leasehold and the freehold titles to maximise the total value.
- Fixed, competitive legal fees with no hidden costs.
- Expert conveyancing solicitors with proven local knowledge.
- No Sale, No Fee protection for your transaction. Terms apply.
- On 99% of mortgage lender panels.
- Fast completions.
- We can solve any property challenge.
The process of creating a new leasehold title
Creating a new leasehold title is a legal process known as the Deed of Grant of Lease. This involves a freeholder (you) granting a long lease of a new, separate part of their property to another person or legal entity.
This process is used whether you are creating a single new lease or many new leases from one freehold block. To do this, you must:
- 1
Obtain Planning Permission and Building Regulation Approval
Before you can begin the legal process, you must have all necessary planning permission and building regulations approval from your local authority.
These must be in place to legally convert your freehold into multiple separate dwellings.
- 2
Get Lender Consent (if applicable)
If you have an existing mortgage on the freehold, you must get your lender's formal consent before you do anything else.
Your lender will want to ensure the property's value is not negatively impacted by the title split. They will grant consent via a Deed of Release.
Lenders are also very particular about the terms of the new lease to ensure the new flat is marketable and can be easily sold in the future. If you plan to remortgage after the title split, you must also be sure the new lease meets the new lender's criteria.
- 3
Instruct a Solicitor
This is a crucial step. A specialist solicitor will manage the entire legal process for you, from drafting the lease to final registration.
The new lease will define the boundaries of the new property (often referred to as the "demised premises").
- 4
Instruct a Surveyor for Land Registry Plans
You cannot draft a new lease without a Land Registry compliant plan. A qualified surveyor or architect must prepare this plan.
The plan provides the Land Registry with a physically accurate drawing showing the exact boundaries of the new leasehold property, including floor levels, access, and communal areas.
- 5
Draft and Agree to the New Lease
Once the plans are ready, your solicitor will draft a new lease agreement. This legally binding document outlines the rights and responsibilities of both the new leaseholder and the freeholder.
It includes details on service charges, maintenance, and the length of the lease.
- 6
Complete the Legal Deed
Your solicitor will execute a Deed of Grant of Lease with the new leaseholder. This legal document formally grants the lease to the new owner, completing the legal transfer of ownership of a part of the property.
- 7
Register the New Title with the Land Registry
Finally, your solicitor will submit the Deed of Grant of Lease and the compliant plans to the Land Registry. This officially registers the new leasehold title, giving it a unique title number and making it a distinct, marketable property.
Included in our Transfer of Part fixed fee:
- Draft contracts issued with Land Registry-compliant plan, title documents, and utilities/plot information.
- Replies to enquiries.
- (If applicable) receive mortgage lender consent for the title split or transfer of part.
- Exchange of contracts and completion.
We will charge extra for Rights of Way, drafting new leases, and setting up a management company for the freehold.
Rights and restrictions
The new lease will define the rights and restrictions that apply to the new property. Your solicitor will need to ensure that any pre-existing restrictions, such as covenants, right to light, or easements, do not hinder the future sale of the property.
Any restrictions will be discovered during a buyer's property searches.
- Planning Permission & Building Regulations: You must obtain all necessary approvals from your local council to legally convert a freehold into separate dwellings.
- Lender Consent: If you have an existing mortgage on the freehold, you must get your lender's formal consent. They will require a Deed of Release to remove the new leasehold part from their security.
- Local Authority & Neighbours: Your local authority can consider objections from neighbours. You may also need further consent if the property is in a conservation area or is subject to other restrictions.
Tax implications of splitting a freehold title
These tax considerations are part of the overall cost of splitting a title. This is a complex area, and the information below is for guidance only. You must get professional advice from a qualified tax advisor or accountant.
Capital Gains Tax (CGT)
When you grant a new lease for a premium (a one-off payment), this is treated by HMRC as a "part disposal" of your freehold property.
This may result in a charge to Capital Gains Tax (CGT) if the value of the new lease has increased since you first acquired the freehold. The tax is calculated on the gain you make.
Your obligations as a new Freeholder
Becoming a freeholder is not a passive role. Once you grant a new lease, you take on specific legal obligations to the leaseholder. These duties ensure the property is well-maintained and that the leaseholder's rights are protected.
Obligation | Description |
|---|---|
Obligation Maintaining the Building and Communal Areas | Description If you choose to retain the freehold, you take on new legal obligations to the leaseholders. You are responsible for maintaining all communal areas, including the roof, exterior walls, hallways, and gardens. You can delegate this work to a managing agent, and the costs are recovered through service charges paid by the leaseholders. |
Obligation Ground Rent | Description You must also understand the rules for ground rent. Under the Leasehold Reform (Ground Rent) Act 2022, ground rent on most new residential leases must be a symbolic peppercorn rent. This means you cannot charge more than a nominal fee. This law was put in place to end the practice of financially demanding ground rents on new leases. |
Obligation Arranging Insurance | Description You are responsible for arranging the building's insurance for the entire property. The new lease will outline this obligation, and you will typically recover the cost of the premium through the service charges. |
Obligation Managing Leaseholder Rights | Description The law gives leaseholders specific rights. As a freeholder, you must be prepared to handle formal requests from your leaseholders, such as:
Ignoring these formal requests can lead to legal action, so it is important to take them seriously and seek legal advice. |
Land Registry-compliant plans
A Land Registry compliant plan is a precise, scaled drawing of the property that clearly defines the boundaries of the new leasehold.
You must instruct a surveyor or architect to draw this plan, as it forms part of your application. The Land Registry will reject plans that do not meet its strict guidelines.
Your plan must:
- Be drawn to a recognised scale, typically 1:1250 in urban areas.
- Have a north point to show the correct orientation.
- Show the extent of the new leasehold property by a continuous red line. The red line must completely enclose the new property.
- Show all communal areas and access routes, such as stairwells and driveways, using a different colour.
- Be drawn on a separate sheet of paper from the lease itself.
- Not be marked with phrases such as "for identification purposes only" or "do not scale from this drawing".
- Show the precise location of the property by including surrounding roads and landmarks.
These plans are crucial for avoiding future boundary disputes and for ensuring the new title can be registered successfully.
- RICS-accredited surveyors to assess the lease premium
- Fixed, competitive legal fees with no hidden costs.
- Handling of the Section 45 Counter Notice.
- Negotiations to protect your asset.
- Full management of the lease extension process.
- Representation at the First-tier Tribunal (if required).
- Combined solicitor and surveyor service for a single point of contact.
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
