01708 757575 mbs@ker.co.uk Enterprise House, 18 Eastern Road, Romford, Essex UK, RM1 3PJ
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Dividing your property into flats – creation of a new lease

Small developers and land owners often find that banks and building societies are only prepared to lend on titles with separate leasehold titles. So how do you achieve this?

If you have developed your own freehold property into two or more flats you may think it is easy to obtain mortgage funding on your new properties.

This is often not the case despite the fact you have obtained planning permission, physically divided the property into flats, completed the conversion works and obtained a building regulations completion certificate. This is usually because the arrangement on the title deeds don’t match the lenders requirements because they will not lend on ‘freehold flats’.

To fix this a solicitor is required to draw up a new lease for each of the flats which needs to be registered at Land Registry. This is a complex document as it needs to comply with the lenders requirements, typically following the Council of Mortgage Lenders instruction for leasehold property, and be fully marketable and saleable in the future as an independent unit.

Difficulties with Lenders

You may have a helpful bank but this is not what we hear about the market. Lenders do not appear to understand these arrangements even though in a lot of ways a refinance combined with a new lease is no different to buying a residential flat ‘off plan’ from a large developer. Some lenders do not like the fact they have mortgages on several flats in the same building.

You may find that an experienced broker is needed to ‘translate’ for the bank and find the right product. Not all banks will lend on such arrangements but we come across many that do. Whilst we do not provide financial advice ourselves we can recommend a independent broker who specialises in such matters if you are stuck.

Legal Issues

You will also need to carefully consider the maintenance and insurance obligations for the building – this may depend on your long term plans for the flats and the size of the building. In addition the rights of way parking and communal arrangements need to be correct. All of this will need documenting in the leases.

To help you with this we will send you at the beginning of the matter a detailed checklist to identify these issues to enable us to fit the lease to your particular circumstances.

New Conversions

If the flats have been created for a long period of time (over 10 years) the lender will not require a “new build” structural warranty (e.g. NHBC or similar).

However if the property is new or nearly new most banks now insist on a “new build” warranty or professional consultants certificate even though it is just a conversion.

The consultants certificate can be provided by your architect, engineer or other professional provided they have overseen the construction of the site. They will normally charge for this. You can also obtain insurance from a structural warranty provider e.g. NHBC, Premier Guarantee, LABC, Buildzone or similar and they will also inspect as the property is constructed/converted. Expect to pay from £1000 per unit for such cover.

If you have completed the flats then the only option is to obtain a “completed housing” structural warranty which is likely to be more costly.

Compliant Plans

The biggest problem we encounter is many clients want to use plans from the planning permission or building regulations consents. These are often difficult to use if we have been given paper copies. Photocopies of originals tend to distort the scale. Ideally we need scale electronic copies. This is because Land Registry are very exacting on this point – each lease needs a ‘Compliant Plan’ showing the exact floor plan layout of the flat. A Compliant Plan should be to scale, show a north point and typically be 1/250 to 1/500 scale but the list of actual requirements is long (see exact requirements below). This is why a professional drawing is nearly always required. The Land Registry are very fussy on this point and many transactions get delayed by problems with the plans late in the day.

You may be able to use your architects or planning consultants to prepare the plans from the planning documents. Otherwise you will need to employ a surveyor or specialist company e.g. www.floorplanz.co.uk http://www.londonleaseplan.com/ or  https://www.leaseplans-photoplan.co.uk/ We have worked with all these companies and they can produce plans for flats for a fixed price which is often cheaper than an architect. The company’s fees may be reduced for large blocks or where good quality planning drawings can be worked from and so no inspection is required.

Legal Costs

We are able to assist you in providing this service for a fixed price. Typically the cost of creating the new leases is £500 plus VAT per flat where there are two to four flats in the building. This will normally reduce due to economies of scale for larger blocks.

We can also combine this cost with the sale of the flats or re-mortgage to a new lender. Typically these add additional costs amount to £300 plus VAT on top of the lease creation costs for a ‘high street’ lender. More complex finance arrangements e.g. bridging finance will require specific quotes.

Adding Value – creating a freehold ground rent investment

Large developers make money from selling ground rent investments when all the flats are in the development are sold – so why not benefit yourself? As well as providing legal drafting we will also advise you on maximising the value of the property as a whole by creating value in the freehold interest in the long term (for example by using escalating ground rent provisions and shorter leases). Typically the value of the freehold reversion will be around £6-7000 for a building with two flats. This will increase according to the number of flats in the building e.g. a building with 4 flats should have a freehold value of £12-14,000 or so following the grant of the leases. This freehold interest can be sold separately in the future as there is a strong market for such investments. This is an area of added value which we bring to our clients in many transactions and this more that offsets the fees we charge.

For  further help and assistance or a quote please contact Mark Sadler 01708 757575 or email mbs@ker.co.uk

Checklist of documents required for new lease and refinance:

  1. Copy planning permission for the development.
  2. Copy building regulations completion certificate.
  3. NHBC (or equivalent) if required (some lenders require this even for conversions).
  4. Three sets of plans (or electronic PDF copy) showing flats as per Land Registry requirements (as specified below).
  5. Copy block insurance policy.

Where a plan is required for any new deed or for any application lodged at Land Registry, it should be prepared having regard to the following guidelines.

  • Drawn to and show its actual scale.
  • Show its orientation (for example, a north point).
  • Use preferred scales of 1/1250 – 1/500 for urban properties.
  • Use preferred scales of 1/2500 for rural properties (fields and farms etc).
  • Do not base on a scale of imperial measurement (for example 16 feet to 1 inch).
  • Do not reduce in scale (see section 6.6 Plans reduced in scale).
  • Do not mark or refer to as being for identification only.
  • Do not show statements of disclaimer used under Property Misdescriptions Act 1991.
  • Show sufficient detail to be identified on the Ordnance Survey map.
  • Show its general location by showing roads, road junctions or other landmarks.
  • Show the land of the property including any garage or garden ground.
  • Show buildings in their correct (or intended) position.
  • Show access drives or pathways if they form part of property boundaries.
  • Show the land and property clearly (for example by edging, colouring or hatching).
  • Have edgings of a thickness that do not obscure any other detail.
  • Show separate parts by suitable plan markings (house, parking space, dustbin space).
  • Identify different floor levels (where appropriate).
  • Show intricate boundaries with a larger scale or inset plan.
  • Show measurements in metric units only, to two decimal places.
  • Show undefined boundaries accurately and where necessary, by reference to measurements.
  • Show measurements that correspond, so far as possible, to scaled measurements.
For  further help and assistance or a quote please contact Mark Sadler at kenneth elliott + rowe solicitors 01708 757575 or email mbs@ker.co.uk

Keywords: Splitting the title into flats Splitting a freehold house Dividing a house into flats sub-dividing your house into flats

18 comments on “Dividing your property into flats – creation of a new lease


Hello Mark
A very good article on flat conversations. Thankyou. Do you have any brokers in mind who can help in getting a mortgage on flats being converted.


Good Afternoon, A very interesting article. One question if you sub-divide a freehold property into 4 flats and remortgage each flat in the same name is stamp duty payable on each flat?

    Mark Sadler Post author

    There should be no stamp duty because there is not going to be a disposal for value. There is no Stamp Duty on the mortgages.

    Mark Sadler Post author

    Stamp Duty Land Tax is not payable on the remortgage amount. You need to obtain specific advice on your circumstances before we can give definitive answers on SDLT but in most cases there is no duty on these arrangements.


Hello Mark

Thank you for this interesting article. If you sub-divide a property into 2 flats and create new 125 year Leases, would this attract Stamp Duty?

    Mark Sadler Post author

    In most circumstances no but it obviously depends on how you arrange the titles. This needs specific advice on your circumstances.


I bought ‘airspace’ above a freehold property (I’m not the freeholder) and have nearly completed building the 3 flats. These flats are all on the same 125 year lease. I’m looking to get a buy to let mortgage but lenders will not consider the current structure unless I create an individual lease for each flat. I’m told this would trigger SDLT and as the flats are owned by a company and hopefully valued at £550,000 to £600,00 each this could be hefty! However, I’m not intending to dispose of any flats but just looking to restructure ownership so I can get a mortgage with out incurring SDLT.

    Mark Sadler Post author

    Lets start by saying you are relatively lucky to be able to build out a airspace lease because they can be fraught with risks (legal and practical).

    I assume you have purchased a single lease of a space which is now subdivided into three flats. The terms of the lease may restrict assignment of part and/or subletting of part. I would imagine however that this airspace lease was designed to be subdivided in some way but it may be better to arrange for the lease to be surrendered to the freeholder and new leases are granted in their place for the new flats. This would not in my view (although I need to see the specifics) trigger a fresh SDLT charge as the freeholder would be paid little or nothing to grant the new leases and provided they are not “connected” to you the market value rules would not apply.

    Also this would not trigger the right of first refusal as the leases would be granted over completed flats which is an exemption.

    The downside is of course legal costs because you are involving the freeholder and he will want his costs paid.

    If this is not a viable option you should (subject to the airspace lease terms) be able to grant sub-leases of each of the flats to refinance. This can usually be done in such a way so as not to trigger a charge to SDLT and I am happy to run this by your accountants if instructed. The downside is the messy title which may be difficult to sell/refinance because there is going to be a sublease and headlease.

    Can you send me your lease to review?


Hi Mark i have recently gained lawfull development regarding house divided into 2 Flats and would like to create 2 lease for the purpose of re-financing , the flats are rented ,can you give an indication of costs involved if this is something you may be able to do, also any SdLT etc , regards

    Mark Sadler Post author

    Broadly I charge £500 plus VAT for the set up of each lease for refinance. Best to email me directly to get a formal quote. Normally SDLT will not apply although there will be £100 in Land Registration fees.


Dear Mark, I wonder if you could help with a query. Our house is divided into 4 flats, we have sold the top flat and are looking to create leases for the three other flats that we own. We would then like to raise a mortgage on one of the flats but the lenders say that the freeholder and the leaseholder cannot be the same person so we need to transfer the freehold to the management And then create the leases. We are worried that this might incur CGT and SDLT by transferring the freehold to the MC and then granting the leases. What would you advise and what would be your rate for doing the work for us? Regards


I am looking at selling a 3 flats on 1 freehold in N1, London into a Limited Company. The flats were converted in the 60’s.

I would like to sell the flats individually. The leasehold plans have been done.

How long would the process take?

    Mark Sadler Post author

    There are a few Stamp Duty Land Tax issues which may arise:
    1. Are you selling to a connected company i.e. one that you control? If so SDLT will be charged on the market value of the flats as opposed to the price paid.
    2. As you are purchasing a residential property through a limited company then the 3% additional rate of duty is applicable (similar to buy to let/second purchases for individuals).
    3. Further if the property is over £500k a 15% rate may apply unless the property is used for a property rental business i.e. you need to rent each unit out and not occupy them personally.
    4. You can claim Multiple Dwelling Relief (MDR) which reduces the rate of SDLT payable, for example SDLT on one building sold for £600,000 is £38,000 but if we claimed MDR on the basis there were three flats within that building then SDLT would be calculated to be £22,500 (i.e. £7500 (being the SDLT on £200,000) x 3 ).

    If there is no mortgage on the freehold at present it would take a couple of weeks to conclude. It takes longer if there is mortgage funding. This depends on the specific circumstances.


Hi Mark,
I am buying with my wife a freehold property divided into 4 flats. After the purchase, I would like to create 4 leases one for each flat. I understand that the new leases cannot be granted to the same people who own the frehold therefore the leasehold interests can only be granted to one of us and not to both of us jointly. Is there a way around this so that we can own jointly both the freehold and the leaseholds? Are there CGT implications when creating the leases?

    Mark Sadler Post author

    It is the granting of the lease where the landlord and tenant cannot be the same. After the lease is granted the landlord (owner of the freehold) and the tenants (owner of the leasehold) can be the same but some lenders do not like this arrangement and want an different party to own the freehold. Typically you can transfer this to an off the shelf company which is owned by you.

    Generally transfers between husband and wife are exempt from CGT https://www.gov.uk/capital-gains-tax/gifts however we can avoid CGT liability with any lease grant where the beneficial ownership remains with the original owner of the freehold.

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