If you are the owner of a flat above a commercial unit, you may be wondering if you could sell the flat to unlock some extra cash. Marina Banks, Commercial Property Solicitor, explains what this process involves and the key points you need to consider.
When you own both the commercial unit and residential unit under one title number, it may seem at first to be quite complicated to split the title. Rather than splitting the freehold interest of the property horizontally, which could potentially cause complications and the property to be un-mortgageable, we would propose granting a long lease to the buyer. Not only is this a less complicated way of splitting the title, but also it would mean that the buyer would be directly responsible to you for the covenants in the lease ensuring appropriate management of the building.
What Should you Consider?
Below is a summary of what you should consider when selling a residential flat above a commercial unit:
- Contractual Term and Ground Rent
When selling the residential unit on the open market, you would need to discuss with the estate agent/valuer as to what contractual term and ground rent would be most marketable.
- Parking Spaces
Are there any parking spaces included with the property and would you consider granting use of one or more of the spaces to the buyer of the residential unit?
- Floor Plans
You will need to arrange for floor plans to be drawn up showing the extent of the residential unit to be sold. We will be able to put you in touch with someone should this be required.
Would the residential unit have separate access to the flat, or will they need to be granted a right of way over part of the commercial unit?
It will be preferable if you can speak to your energy, gas and water suppliers to install separate meters to ensure that the flat owner will be responsible for their own bills. This would prevent you from having to get involved in splitting the bills on a regular basis.
- Repairs to the Building
Should you need to carry out any repairs to the roof or external premises in the near future, it would be reasonable to request a regular contribution for large items of anticipated expenditure from the residential unit owner going forward, usually referred to as a ‘sinking fund’.
- Covenants in the Lease
You will need to consider what tenant covenants should be included in the lease. This can range from the usual “Payment of Rent” and “Payment of Service Charge”, but can also include restrictions in respect of parking if this were to be included, and certain provisions in respect of allowing the buyer to make any alterations to the property. We will run through these with you during the transaction and explain the implications.
Recently, there has been an increase in this kind of transaction and unlocking existing potential in buildings. While it is certainly a more complex transaction than selling the whole of a freehold title, it is a straightforward transaction that we can assist you with.
If you are considering selling the flat above a commercial unit and would like further guidance, please contact Marina Banks, Solicitor, on 0161 475 7604 or email [email protected] to talk you through your options.