Creating Leasehold Titles? Speak to Your Advisers First

A small detail when creating a leasehold title can have a significant impact on your future property refinancing options.

For property investors, creating leasehold titles can be an important part of a development, refurbishment or restructuring strategy.

However, one area that is sometimes overlooked is how the transfer of the property or newly created leasehold interest is documented and valued.

We have seen situations where a transfer has been recorded for a nominal amount for example, £1, even though the underlying property has a substantially higher market value.

While this may appear to be a straightforward administrative step, it can create problems later when investors want to refinance.

.

.

Why Does the Transfer Value Matter?

Can a £1 Leasehold Transfer Affect Refinancing?

One of the issues we encounter is when an investor creates a leasehold title and subsequently approaches a lender for finance within the first six months.

Lenders require the property to have been transferred at full market value. 

For example:

Property market value: £300,000

Transfer value recorded: £1

Refinance required shortly afterwards.

In the above scenario, the £1 transfer value will create a significant issue.

A lender may not be prepared to treat the property as a straightforward £300,000 acquisition for lending purposes.

This can potentially leave an investor unable to refinance at the true open market value.

.

Don’t Treat the Transfer as “Just Paperwork”

This is where communication between your solicitor, accountant and property finance adviser becomes extremely important.

When creating or transferring a leasehold title, it can be tempting to think of the transfer documentation as simply a legal formality.

It isn’t necessarily that simple.

The transaction can have implications for:

• Future mortgage and refinance applications

• The value that may be considered by a lender

• Stamp Duty Land Tax (SDLT)

• Corporation Tax and Capital Gains Tax considerations

• The timing of your future refinance

.

Get Professional Advice First

Before creating or transferring a leasehold title, we recommend that property investors speak to the relevant professionals involved in the transaction.

Your solicitor can advise on the legal structure and documentation.

Your accountant/tax adviser can advise on the appropriate accounting and tax treatment.

Your property finance adviser can help you understand how the proposed structure and transfer may affect your future borrowing options.

These conversations should ideally happen before the transaction is completed.

Trying to fix the issue retrospectively can be considerably more complicated than getting the structure right at the outset.

.

How can Advocate Finance help?

We provide a FREE assessment on all our services.

Please contact me directly for more information, or Get in Touch with Us Today

.

.

FAQ’s