What does it mean to split a deed to a property? What are the reasons someone would do this?

First of all, I’m just going to make a disclaimer, which covers the entire rest of this podcast – I’m not a solicitor. I’m going to be talking from a finance point of view as a broker.

Title splitting is a relatively complex and property investment strategy. It requires a number of inputs from professionals – and finance is just one element of that.

Just keep that in mind that everything I say is under the caveat that we can’t advise on all elements of a title split. Really, it’s accountants and solicitors along with a broker that you should be speaking to as a property investor.

With that covered, from my understanding, splitting a title is most relevant when you’ve got a freehold title such as a multi-unit freehold block of flats. It tends to work better financially once you’ve got five or six flats in one block.

These are all individual units, and you create new leasehold titles for each one of those units within the freehold. So it goes from being one multi-unit freehold block to lots of separate leasehold titles within that block.

What is the process to split a deed? What documents are required to legally split a deed?

I can talk from experience, because I did a title split purchase investment myself on an auction property.

In order to create separate leasehold titles, you need to know what that title will look like. The Land Registry is going to need a copy of the title, and you need an accurate floor plan to satisfy their requirements.

This leads into a solicitor’s area of expertise. You need good legal titles ready to submit to the Land Registry and a solicitor that’s ready to do the split.

There are a number of different ways to do the split. When I spoke to my solicitor they talked about methods such as a ‘sale and lease back,’ for example. If you’re splitting simultaneously with the purchase, on the day of completion your solicitor facilitates a transaction with two companies. You set up a company that will own the freehold and another company that will own the leaseholds.

All the value from the freehold that you bought is transferred to the leasehold titles. So, the freehold eventually becomes null and void. In terms of documents required to legally split a title, it’s best to ask the solicitors.

Who needs to be involved in the process?

A surveyor is always involved as they value the property initially. From the finance point of view, the lending is partly based on the value of the property as it is, but also partly on how the property will be valued once the new leasehold titles are created.

Once these new titles are created, that new split or aggregated value is going to be a lot higher than the value of the property when you bought it. So you’re automatically creating a lot of additional value by making the property into individually sellable units.The valuer’s perspective on this is really crucial.

The lawyer is also crucial because they’re advising on the process. Your accountant is going to be working with the solicitor to give tax advice – to make sure you don’t get caught out as the buyer by paying stamp duty twice or capital gains tax, for example. They work together to make sure it’s all structured correctly.

You’re relying on your professionals to ensure you’re well advised and you don’t incur any unforeseen tax burdens.

When we did our title split, we got a different surveyor who measured and sketched out all the floor plans for the flats and the communal area. We paid an additional £1,500 for five flats. That was really useful, because my business partner is an architect and she wanted to see the exact layout and what the possibilities were.

But as long as the floor plans are acceptable to the Land Registry, that particular part of the process isn’t necessarily required.

How do I know if the current mortgage on the property allows for a deed to be split?

This question demonstrates that people may not understand the real benefit of a title split. If you already have a mortgage on the property and you’re looking to split it, there may not be a big financial benefit to you.

Title splitting, for me, is a strategy for a property investor that wants to buy a new property where there’s a possibility to add value to it by title splitting. If you already own the property with a mortgage on it, the benefit of splitting is not that big.

Actually, my dad is currently splitting a title on his residential property to sell off a part of it.

In that circumstance, theoretically, there’s a benefit – as you could release cash from your own house. You might split off some land and get planning for a new build on it, or sell it to a developer.

To find out if the current mortgage on the property allows a split, you need to speak to the lender. But broadly speaking there needs to be a lot of equity in the property. When you split that part of the property off, you’re obviously reducing the value of the plot.

As long as that reduction in value doesn’t mean your mortgage breaches any Loan to Value threshold, the lender may allow it. You’d need to speak to them and get the plot valued with that bit of your property taken out.

How do I find out if there are any local land use laws that restrict deed splitting?

Speak to local planning advisors, I would say. Planning consultants are your best bet. They’re another professional that is crucial for a lot of property investment, and particularly in this case.

What type of ownership structure will result from the deed split?

Sometimes there would be a management company. The freehold would be owned by one limited company and the leasehold titles go into the other company under your ownership.

Again, you need to speak to a solicitor, but if you want to create a structure where it’s easy to sell some of the units, having a management company in place is probably a good idea.

Do both or all current owners need to agree to the split?

If you already own a residential plot and want to carve part of it out to sell or build on, all owners and the lender would need to agree to it.

Is a new survey of the property required when splitting a deed?

Probably. If you’re splitting the deed whilst you’ve already got some lending on that property, your lender is going to want to know what the property is worth now and after the split – so yes, a survey would be required.