Property Section Question: Can the owner of a Freehold block of flats grant long leases to its company?

Answer: Yes, it is possible to grant long leases of each flat to your company and then obtain a mortgage on each flat, but there are important legal, financial, and practical considerations to consider:

1. Granting Long Leases to Your Company

• As the freeholder, you can grant long leases (e.g., 99 or 125 years) to your company for each flat.

  
  

• Ensure the leases are properly drafted, detailing terms like service charges, ground rent, maintenance and repair of common parts and rights of use.

2. Obtaining Mortgages on the Leased Flats

• Once your company holds the leases, it can apply for mortgages secured against these leasehold interests.

  
  

• You’ll need to work with lenders who are willing to provide mortgages for leasehold properties. Lenders will assess:

  
  

  • The terms of the lease.

    
    

  • The company’s financial standing.

    
    

  • The value of the individual flats.

3. Practical Considerations

• Valuation: A valuation will be required for each flat to determine the mortgage amount.

  
  

• Loan-to-Value (LTV): The LTV ratio may affect the borrowing capacity for each flat.

  
  

• Lease Terms: The leases must comply with lender requirements (e.g., minimum lease term, no restrictive covenants, repairing responsibilities).

4. Tax Implications

• Stamp Duty Land Tax (SDLT): If the company pays a premium for the leases, SDLT may apply.

  
  

• Capital Gains Tax (CGT): Future sale of the flats could trigger CGT.

  
  

• Corporation Tax: Rental income generated by the flats will be subject to corporation tax.

  
  

  We work with your tax advisers to structure the leases in the most tax efficient manner.

5. Legal and Financial Advice

• Legal Advice: Consult a property solicitor to handle the lease drafting and registration with HM Land Registry.  The leases must not only comply with the lenders requirements but must also be HM Land Registry compliant.

  
  

• Financial Advice: A tax advisor or accountant can help navigate potential tax liabilities and ensure compliance with regulations.

  
  

• Lender Requirements: Work with a mortgage broker to identify lenders who understand this structure and are willing to lend to your company.

Key Points to Note:

• Ensure there is no conflict of interest between your role as the freeholder and as the company director.

  
  

• Some lenders may prefer or require the freehold and leasehold interests to be held by separate legal entities, so this structure works in your favour.

By carefully planning and seeking professional advice, you can achieve your goal of mortgaging each flat individually through your company.

Contact FG Solicitors today on 0808 172 93 22 or complete our quick contact form for a no obligation discussion!

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This update is for general guidance only and advice should be taken in relation to a particular set of circumstances.