Selling house currently configured as two flats

andalusite

Through inheritance I am a part owner of a house that is currently split into upper and lower flats. My late uncle was an owner resident in the upper flat and the lower flat has tenants who are due to move out shortly. The flats have separate kitchens, utility metering and entry doors.

We are in the process of selling the property as-is and we have had an offer from a couple who want to revert the property to a house.

In November we were presented with a list of questions and issues:

1. remove a kitchen

2. revert to a single set of meters for utilities

3. confirm the property has a single council tax

4. confirm a single postcode

5. has a single Title

We have confirmed the last two points. However, as far as we understand the situation, the first three points are the responsibility of the purchaser. In the last week we have seen the original valuation done by the mortgage provider and it lists all five items as recommendations.

As far as I know the valuation report is for the benefit of the mortgage recipient, as it sets out the conditions under which the lender will release funds. However, it appears that perhaps somebody doesn’t understand that.

An alternative interpretation is that the purchasers want us to make the modifications. But, later in November the purchasers stated they would remove the kitchen at their expense; we would require some legal paperwork to protect out interests: as a “key undertaking”. But nothing has progressed and the two solicitors continue to bat the questions back and forth and we continue to repeat the same responses.

We do not know what constitutes removal of a kitchen. Is it only the sink and waste? Or all the white goods and units? I contacted the mortgage provider for guidance, but the customer helpdesk could not help.

Reversion to a single council tax can only be done once the property is modified to be a single dwelling. Again, we do not know what this requires. I suspect removal of a kitchen may be part of it, but perhaps also removing the access door to the upper flat. The local council could provide no guidance other than tell me what the process for re-valuation and banding was after the modification work was done.

AFAIK a purchaser can only do work on a property once exchange has occurred, with a deposit paid. But we can only get to exchange once the mortgage funds are in place, and the purchaser cannot get the funds without doing the work, apparently.

Why does the mortgage surveyor report state the list of issues as recommendations?

We suspect the sale will soon fall through. And then we are left to re-market and possibly go through the same malarky; unless we find a cash buyer.

Any thoughts?

user1977

Isn't your solicitor giving you any advice? It's them who ought to be clarifying what your purchasers require for the purchase to proceed.

It is however fairly normal that for a standard residential mortgage, lenders expect it to be a single property, not something which still looks like two flats - even a granny annexe with a separate kitchen can cause problems. And any necessary work would need to be done before completion of the sale.

ProDave

I suspect as one property it might be worth less than as 2 separate units.  So the mortgage company would want a valuation on that basis.  I would have thought a surveyor could provide that.

The conversion work, removing one kitchen, and joining the whole lot onto one meter and having the redundant meter removes will all cost money and it would be the buyer to pay that and have the work done after buying it.  They should get quotes for that and factor it into their decision.

The re combined single dwelling would have to be re valued for council tax and the 2 separate flats removed from the register.

rexmedorum

What are the questions related to point 1 and 2? Are the buyers expecting yu to do this?
That could be costly and time consuming not to mention they could pull out after you've done the work.

On the face of it the kind of buyer you're really after are investors.
If it doesn't readily sell, would keeping i and renting both flats out be an option?

GDB2222

This deal is going to fall apart, as your buyers are unsuitable. To do what they want to do, they need a development mortgage. There’s no point telling them this, as they will just make some other errors later on. You need to make up your mind which of a number of options to choose.

1. Split the title into two flats, and sell those to two buyers who actually want flats. You may want to do some tarting up, or just sell as they are.
2. Leave it exactly as it is, and sell it to someone WHO KNOWS WHAT THEY ARE DOING 
3. Convert the building into a single house, and sell it as such.

I don’t know the area or the property, but possibly option 1 is the best. It leaves you free to sell both flats to someone who wants to live in one and rent out the other, with an option to combine them into one house later.

 You should get some advice from a decent agent, and you can speak to your solicitor about what’s involved in splitting the title. It should be easy.

sourpuss2021

ProDave said:

I suspect as one property it might be worth less than as 2 separate units.

Depends on the area I'd think.   Where I live there's more demand for family houses than if the same property is divided into grotty flats.  The flats will have a higher rental value but I think they'd sell for less.

Thrugelmir

andalusite said:

Why does the mortgage surveyor report state the list of issues as recommendations?

The independent surveyor is contracted by the lender.  The lender then decides if the property meets it's residential lending criteria. 

eddddy

andalusite said:

We do not know what constitutes removal of a kitchen. Is it only the sink and waste? Or all the white goods and units? I contacted the mortgage provider for guidance, but the customer helpdesk could not help.

It's generally the presence of cooking facilities that make it a kitchen (cooker, hob oven etc) and/or perhaps the presence of an electric supply or gas supply for a cooker.

If it was a second kitchen in a granny annex or outbuilding, for example, people sometimes get away with removing the cooker and calling it a utility room or laundry room.

But in your case, I doubt the valuer would accept that - because it would probably still look like 2 kitchens for 2 flats.

andalusite said:

AFAIK a purchaser can only do work on a property once exchange has occurred, with a deposit paid. But we can only get to exchange once the mortgage funds are in place, and the purchaser cannot get the funds without doing the work, apparently.

There are many different ways of arranging it - it depends on how much risk the seller and buyer want to take (and/or how much the seller and buyer trust each other).

For example,

• The buyer can pay you to remove the kitchen (and do other work) before exchange. But you might decide to sell to somebody else, so the buyer loses the money they've paid you.

• You let the buyer remove the kitchen (and do other work) before exchange. But the buyer might damage the property and reduce its value, and then decide not to buy it.

(And there are many other reasons why exchange might not happen after the work is done.)

Because of those risks, solicitors don't generally advise doing things like that. But it's up to you and the buyer.




But as @GDB2222 says, I think your buyers are going to struggle to get a residential mortgage for this project.

saajan_12

andalusite said:

Through inheritance I am a part owner of a house that is currently split into upper and lower flats. My late uncle was an owner resident in the upper flat and the lower flat has tenants who are due to move out shortly. The flats have separate kitchens, utility metering and entry doors.

We are in the process of selling the property as-is and we have had an offer from a couple who want to revert the property to a house.

In November we were presented with a list of questions and issues:  - I don't get what the ask is: you do it, or they do it and deduct the cost from the purchase price? 

1. remove a kitchen

2. revert to a single set of meters for utilities

3. confirm the property has a single council tax

4. confirm a single postcode

5. has a single Title

We have confirmed the last two points. However, as far as we understand the situation, the first three points are the responsibility of the purchaser. In the last week we have seen the original valuation done by the mortgage provider and it lists all five items as recommendations. - well they're the responsibility of whoever you agree. If you refuse, then yes the buyer's responsibiilty, but they they might just pull out. As for the mortgage, that's going to be the key.. are they willing to lend in the current setup? 

As far as I know the valuation report is for the benefit of the mortgage recipient, as it sets out the conditions under which the lender will release funds. However, it appears that perhaps somebody doesn’t understand that. - yes, but if this and most other lenders won't release funds for the current setup, then you'll find it difficult to sell. So you'll either end up limiting to cash buyers, or have to do some work (whether that's splitting titles or merging into a house)

An alternative interpretation is that the purchasers want us to make the modifications. But, later in November the purchasers stated they would remove the kitchen at their expense; we would require some legal paperwork to protect out interests: as a “key undertaking”. But nothing has progressed and the two solicitors continue to bat the questions back and forth and we continue to repeat the same responses. -well that's what you need to discuss and firm up. It would be a non standard agreement and there's a few ways to go about it, so may take some time to agree and then get solicitors to write up (possibly extra legal costs). 

We do not know what constitutes removal of a kitchen. Is it only the sink and waste? Or all the white goods and units? I contacted the mortgage provider for guidance, but the customer helpdesk could not help. - try a broker perhaps? I'd think at least cooking facilities, but even taking out some appliances will still look like an incomplete kitchen waiting to be put back (vs something that genuinely started as a utility room sink, or just a hotplate in a room) so more likely will need a full removal. 

Reversion to a single council tax can only be done once the property is modified to be a single dwelling. Again, we do not know what this requires. I suspect removal of a kitchen may be part of it, but perhaps also removing the access door to the upper flat. The local council could provide no guidance other than tell me what the process for re-valuation and banding was after the modification work was done.- I'd expect 1 kitchen and 1 external access plus knocking through so you have internal access between the flats at the least.. 

AFAIK a purchaser can only do work on a property once exchange has occurred, with a deposit paid. - that's not a rule, depends on if you agree to let them do work before. Of course that comes with the risk that you/they do the work and then don't purchase, meaning you're left with a less sellable property. 

But we can only get to exchange once the mortgage funds are in place, - again not a rule, the lender isn't party to exchange. Of course that comes with the risk that the buyer exchanges ie commits to the purchase before knowing they can get the mortgage funds. If they are confident enough about the valuation and affordability then might be a risk they can take..

and the purchaser cannot get the funds without doing the work, apparently. - as above, many residential mortgages lenders won't agree to lend on 2 flats. 

Why does the mortgage surveyor report state the list of issues as recommendations?

We suspect the sale will soon fall through. And then we are left to re-market and possibly go through the same malarky; unless we find a cash buyer. - well yes, cash buyer or split the title and sell as 2 flats, or merge the properties and sell as 1 house

Any thoughts?

Underlying problem is you have a mismatch between the physical layout of 2 flats, but only 1 title, so will struggle to sell as is to someone looking for flats or a house. The reason is residential mortgage lenders expect the borrowers to live there, and if there's a separate unit with kitchen and its own facilities, then they suspect the borrower will live in one half and let out the other. The tenants might then be harder to evict if the lender needs to repossess, but the lender hasn't got the higher BTL mortgage rates to compensate. 

With this buyer, the options are
- you do the work, sell as 1 property
- buyer pays for work before exchange -> risk either side pulls out and you're left with a kitchen-less flat or buyer has paid for work with no benefit, so need to agree what happens then and how to determine who pulled out
- buyer pays for work after exchange -> either they get a mortgage offer contingent on getting the work done before completion, or take the risk that they'll exchange, do the work and then get a mortgage
-  buyer pays for work after completion -> if they can get a mortgage contingent on getting the work done within x months after completion, or they get a BTL / development mortgage that's happy with the 2 flat setup, and remortgage to a residential afterwards. 

With another buyer, you could likely be in a similar situation so your options are
- sell as is to a cash buyer or face the same problems / options above
- split the title and sell as 2 flats
- merge the properties into 1 house physically and with council etc, and then sell as 1 house.

andalusite

Thanks to all who replied, much of which confirmed our own thinking.
Our estate agent informed us that the sale of the purchaser's own house has fallen through. We have dismissed the solicitor.
We will now make the modifications to the property, at our cost, to revert it to a single dwelling. Hopefully, this will satisfy both the local council and mortgage providers and thereby remove any potential roadblocks to a sale.
Although, to extend the traffic analogy we did seem to stuck on the roundabout from hell.........

lincroft1710

You will need both Planning Permission and Building Regulations Approval. It may be worthwhile seeking the advice of a qualified architect or suitably qualified architectural consultant.