What Is Title Splitting and How Do I Do It?
We mention Title Splitting a lot, it’s in the title and our name, but what does it mean and how can you do it? Before we talk about how it is done, and how you can do it, let’s define Title Splitting.
What is Title Splitting?
Firstly, Title Splitting has been around for a long time, since the 17th century, in fact. It was how wealthy landowners kept generational wealth – they would create leasehold buildings on their land, which was called the freehold, and they would then sell off the leasehold buildings. Through processes like ground rents, service charges and release renewals, they could pass on wealth through the generations to their family, which is how it originally started. We delve into this subject in more detail in our Introduction to Title Splitting video.
What are the different kinds of Title Splitting?
Some aspects of leasehold have remained the same almost since they began. Now in 2024, we’ve got new legislation called the Leasehold Reform Act which is changing a lot when it comes to Title Splitting a deed.
Firstly, the freehold is the land on which a building sits. Picture this – we’ve got a house on a piece of land and below it is the ground, which is the freehold. Often with buildings like apartment buildings, the airspace above your head is also part of the freehold. In terms of a leasehold, Title Splitting is breaking away the leasehold from the freehold. It can also be creating two separate lots of freehold from one lot of freehold.
Here’s an example; say you buy a piece of land and you build a house on one side of that land. You build another house on the other side of the land and Title Split it to create two separate freeholds – that’s one way you can do a Title Split.
Another type of Title Split is where we have a freehold and a leasehold. A freehold, as mentioned, is the land that the building sits on or in an apartment block. It will also be the shared areas like hallways for example. Shared areas that form part of the freehold may be the gardens, a pathway to the front door to enter the apartment building, the lift areas, or the roof space. The leaseholds are the individual apartments inside the building and are separate units. Now in today’s society, those separate leasehold units in an apartment building are called mixed-use buildings because they can include commercial property or a unit in a commercial building. It’s the individual units that have the value.
How does the Leasehold Reform Act affect Title Splitting?
This big change in leasehold and freehold has recently been driven by the Leasehold Reform Act. There are two parts to this. The first part, implemented in 2022, addresses the issue of ground rent. Historically, wealthy landowners could charge what they wanted for ground rent. However, new restrictions have been introduced, particularly affecting mortgages. For instance, if an individual owns a leasehold flat with ground rent exceeding £250 per annum, lenders may not look at this favourably – leading to difficulties obtaining a mortgage.
Now in 2022, the Leasehold Reform Act says that new apartment buildings can only charge one peppercorn. Yes, that’s right – one single peppercorn in ground rent. The term peppercorn is said to have actually come from 16th/17th century leases where the rent was, in fact, a single peppercorn a year. Today it means you cannot charge any money for it. Of course, we can’t turn up with a peppercorn at the solicitors. This means that properties are becoming imminently more mortgageable if the conditions are right.
In the past, leases used to be 99 years, maybe 125 years on a block of apartments. The second part of the Leasehold Reform Act is that from May 24th 2024, leases can now only be granted with a minimum term of 990 years. At Title Split we’ve been teaching our clients to do this for the last five years in preparation for change.
So here’s the thing; all property investors will now have to make sure that landlords and developers ask solicitors to create leases for 990 years. That is because when we get to a certain point in a lease (usually around 80 years) it becomes unmortgageable. Many older leases were only 90 years in length, which necessitated leasehold property owners to request extensions.
What does the Leasehold Reform Act mean for my Title Split or property?
The good news is that when you ask for this lease extension, the next time you negotiate it the Leasehold Reform Act means the minimum term that can be granted for the extension of your lease will be 990 years. You won’t ever have to pay that extension again in your lifetime, which is great for mortgageability.
The Leasehold Reform Act is also going to make it easier for leaseholders to challenge and buy the freehold together, to club together all the leaseholders to buy the freehold of the building. This may not be where it will stop, but Title Splitting is changing.
How can I make money by splitting a property into two titles?
So, what’s in it for you? If you buy a building that either has apartments in it, has commercial property and apartments or can be converted to residential, there is a great uplift opportunity if you Title Split during ownership. Traditionally, property investors only have Title Split deeds or properties on sale, which means they leave a lot of equity in the property if they’re holding it for cash flow. You can get a 25-35% capital uplift by doing so, and if you want to know how to do this properly, please reach out to Title Split or take a look at our Introduction to Title Splitting video.
Title Splitting a property has the potential to be very lucrative. If you know how to Title Split property and you are a landlord or a developer, you can add a minimum of 25 to 35% capital growth. We have clients here who are Title Splitting blocks they already own and getting 70 to 80% capital growth. The earning potential is huge, whether you’re buying it or you already own it.
Despite what some people may say, Title Splitting is complicated. You may have friends who are property developers, and they will tell you that all you need to do is go through a solicitor, and you do it when you sell it. Now, both of those statements are unfortunately completely untrue.
Here’s what often happens for landlords, developers, and property investors when you attempt to find a solicitor for Title Splitting, either during purchase or ownership. Many solicitors will tell you it cannot be done. Historically, Title Splitting has only been performed upon the sale of the property to a third party. For example, a developer constructs a building and sells the flats, and the Title Split occurs at that stage. This is the only type of Title Splitting that has traditionally been done, where the leases are granted to the new owners. But, the naysayers are wrong and it can be done.
How to do a Title Split as a landlord or developer
Which properties are best for Title Splitting?
The larger the house, the more properties you should be able to split it into. A large refurbishment property would be ideal since it would be cheaper than buying a home that’s ready to move into. Former nursing homes, guest houses, or old hostels would be ideal. Old tenement properties and large townhouses are also suitable. Of course, you would have to factor in the cost of materials and labour to develop the premises into individual flats to rent or sell. In other words, there’s no point in proceeding if the refurbishment costs are going to be too high.
Finding pre-split properties
An easier way to get a large property without extensive building work would be to find a property that has already been split to some extent. This could include an HMO, where the landlord has decided to sell and retire. There would still be building work required, but it wouldn’t be quite as intensive. You could always keep renting it as an HMO while you proceed with development plans. That way, you would still make an income from the property and wouldn’t have to rush into anything.
Retaining the freehold for long-term benefits
Even if you sell the flats, it’s a good idea to hold on to the freehold and sell each individual flat as a leasehold property. This means taking responsibility for common areas and other maintenance issues related to the building as a whole, but it also gives you more control and provides various streams of monthly income.
What are the legal frameworks and requirements for Title Splitting?
Planning permission
Property owners must obtain planning permission for splitting a property into two titles. It makes sure that the division and splitting align with local development plans. The proposal’s impact on the local area is looked at, considering factors like access, design, and if there’s a potential strain on services.
Navigating building regulations
When splitting a property, you have to comply with these regulations. Structural integrity, fire safety, energy efficiency, and access are all very important. You must make sure that the newly created units meet these standards. Seeking advice from a professional is advisable to navigate these complex requirements.
The Land Registry
The Land Registry is responsible for registering land and property in England and Wales. Once planning permission and regulatory compliance are in place, your next step is to submit detailed plans of the divided property and legal documents to the Land Registry.
How to split a property title: Starting with land
In terms of land, the first thing to note is that you need to be really careful when you Title Split it. Imagine two pieces of land side by side with each other. Often with land, you can split one side away from the other side.
What we suggest is, if you’re planning to do this and build on this land, that you do it upon sale, because you don’t know what might happen. A good example would be that you buy a house, renovate it and then have a massive free garden that you plan to build on. Many people would say, “I want to buy a property like that and get planning to build on the garden.” Some people may even be sitting in a house where they could potentially build on the garden. The reality is, if you do that Title Split too early, you may have to do it again because you’ve done it wrong. That is why we would suggest you build the house in the garden. Then, when you go to sell the old house, you split at that stage.
Title Splitting mixed-use properties and apartments
The next aspect is apartments or mixed-use buildings. Think of a commercial shop at the bottom with residential properties above. There are many of these out there that are unsplit. They physically exist, but they don’t legally exist.
You will need a whole power team of professionals around you to enable the split of that building. Those professionals need to understand it. If you are a landlord who has tried to do this before, you will have gone to your solicitor who will have told you to wait till you sell. You might have gone to your mortgage broker who may not have been able to get you the right product. You may have gone to your accountant who may have told you not to do it at all and to do it when you sell. So you, as an investor, are going round and round in circles trying to find help.
Now, lucky you. You’ve landed in the right place, as we have years of expertise here. You need a whole team – a power team, we call it – of experts. The good thing here at Title Split is that when we work with our clients, we give them access to that power team panel of experts whom we have trained to do this on behalf of property developers and landlords.
What is the value add in commercial property Title Splitting?
The value add in the residential sector is where we get the 25% to 35% capital uplift. In commercial property, the value add comes from having small units that have a higher cost per square foot when you rent them to commercial businesses. So if it’s big, it might have a smaller cost per square foot. But if it’s broken down into smaller units, it will have a bigger cost per square foot for rental, which means you are going to make more money on it. Commercial property looks at rent, yield, and square footage valuation, so you will be able to get more money out of your deal by creating smaller units.
How can I Title Split across different properties?
The great news is that the processes we teach are exactly the same for commercial property, mixed-use property, and residential property:
- If you need to get something into your SSAS, and you want to split property to get it in your SSAS, we’re the experts at that.
- If you want to find out exactly how to do Title Splitting to achieve that 25% to 35% capital growth for new blocks, we can help you do that.
- And if you want to add massive value to existing blocks, we can help you do that, too.
While this may seem too good to be true, the good news is it is true, and you can benefit just like the hundreds of people we have helped. Contact Title Split and we’ll show you exactly how to navigate Title Splitting, we’re a click away!