Selling portion of the garden (share of freehold)

claytob86

Hi, I live in a ground floor flat in a Victorian terrace conversion. I own a 50% share of the freehold, as does the owner of the 1st floor flat. The freehold is actually owned by a company set up for only this purpose, of which we are both directors.

We both have separate leases for our sections of the property. Mine states that the ground-floor garden at the rear of the building belongs to me. This is further evidenced in my leasehold title plan. Confusingly, along with my lease title plan, the freehold title plan also highlights the borders of the property including the garden.

Our neighbours to the rear have asked to buy a section of the garden. My question is threefold;

• can we sell a proportion of the garden without involving the freehold company?
• if the freehold company must be involved, would the sale be subject to any taxes?
• also if the freehold company is involved, would the owner of the other half of the freehold be entitled to a proportion of the proceeds?

Many thanks in advance!

Dan-Dan

You cant sell any of it unless the lender agrees , do you have a mortgage?

claytob86

Yep. I hadn't actually considered the lender...

eddddy

And as well as the mortgage lender issue...

- The freehold company will be selling the freehold of part of the garden.

- Your lease will have to be varied (i.e. changed) to show a smaller garden.

So both of you have to agree as joint freeholders (and technically, you have to agree in your capacity as a leaseholder as well).

You have to agree between you how the sales proceeds will be split between you.

(If you can't both agree to sell and/or you can't both agree on how to split the money - the sale can't happen.)

claytob86

I'm not so worried about changing our lease. The sale going through the freehold company is slightly more of a concern. Would the sale be subject to CGT due to the sale going through the freehold company?

freeisgood

Will it devalue your flat?

eddddy

claytob86 wrote: »

I'm not so worried about changing our lease. The sale going through the freehold company is slightly more of a concern. Would the sale be subject to CGT due to the sale going through the freehold company?

Well, I imagine the transaction would be structured something like this (using made up numbers) :

- The freehold co sells the land for £20k
- You as leaseholder receive £18k as 'compensation' from the freehold co for giving up part of your garden.
- (So the freehold co is left with £2k)

So I'd imagine that most of the potential tax liability falls on you personally, rather than the freehold co.

If you were selling part of the garden of your primary residence, it would be exempt from CGT. But I've no idea if you would get exemption for 'compensation' for varying your lease.

claytob86

We've spoken to two estate agents who said it will not adversely affect the value of the property.

Dan-Dan

You need something a bit more formal than that to satisfy a lender

Probably a RICS surveyor or similar

claytob86

eddddy wrote: »

Well, I imagine the transaction would be structured something like this (using made up numbers) :

- The freehold co sells the land for £20k
- You as leaseholder receive £18k as 'compensation' from the freehold co for giving up part of your garden.
- (So the freehold co is left with £2k)

So I'd imagine that most of the potential tax liability falls on you personally, rather than the freehold co.

If you were selling part of the garden of your primary residence, it would be exempt from CGT. But I've no idea if you would get exemption for 'compensation' for varying your lease.

Thanks for your reply. The freehold company, as it stands, doesn't have any money coming through it. The company doesn't have an associated bank account, for example. With that in mind, I don't think we would be leaving any money for the freehold company. Presumably this would be subject to agreement with the co-freeholder?

With regards to the tax implications, the flat is our primary residence. Does you answer imply we wouldn't be subject to CGT?

eddddy

claytob86 wrote: »

We've spoken to two estate agents who said it will not adversely affect the value of the property.

That's good. However, your mortgage lender will probably want their surveyor/valuer to do a new valuation. You'll have to pay for this.

And if the valuer disagrees with the EAs and decides to reduce the valuation, your mortgage lender may want you to pay off part of your mortgage (in order to keep you within the LTV limits for your mortgage).