Make sure you use a solicitor experienced in creating leases. This may seem a relatively mundane process, but I assure it is of VITAL IMPORTANCE! When it comes to both remortgaging, and in future when you look at selling, a poor lease can mean you could lose thousands, if not tens of thousands of pounds in potential profits, and in extreme cases can prevent you from being able to sell a property. Let me illustrate with an example:

I viewed a property that was separated into 5 self contained units, but was in effect a single leasehold with an over-riding freehold. My intention was to put each self contained unit onto a separate lease and refurbish them and hope to make a nice profit. But as with all things that seem too good to be true, there was a problem. The main lease was defective.

The freeholder had no obligation to maintain the fabric (or exterior walls and roof) of the building (this is a normal freeholder obligation and the costs are normally recouped from the leaseholders) and also there was no requirement for the freeholder to provide buildings insurance.

So in effect the property’s roof and walls could be caving in and the freeholder would not be required to repair it. Also, if the building burnt down, there is no means in place to get it reinstated – so in effect the freeholder could claim any damage and not have to rebuild the property – the leaseholder would be the one who stands to lose with having a mortgage on a non-existent property.

This is not to say that such a deal can still not be made to work. I approached the freeholder and asked if they would be willing to remedy the defect in the lease. They never got back to me, which told me that they would not remedy the defect. Problem solved – I did not buy the property.

Expect other issues to crop up

From disputes with neighbours, to boundary walls that don’t match the title deeds. It’s like buying a lucky packet – you never know what you’re going to get. There will always be some issues that crop up even when you have done all your due diligence.

I remember a property I purchased that had been separated into 2 flats but was on 1 freehold. Each unit was in great order, and required minimal work needing to be done. There was planning permission in place and building regulations approval. I even was given a copy of the FENSA certificates for the Double Glazed windows.

I was half way through the project when my solicitor gave me a call and said he noticed that the title deed drawings did not match my architects’ drawings which would be used for the lease creation. In effect the back garden fence was running diagonally across my properties back garden to the extent that almost a third of ‘my back garden’ belonged to the neighbour. As it transpired the previous owners of the properties back in the 1970’s had agreed to move the garden fence without updating the deeds.

My course of action to recoup the land would have involved a long protracted legal case with substantial fees. In the end I would have only gained a bit of garden and it did not have a material impact on the value of the property so I left things as they were.

Taken from Toby Hone’s fantastic new book ‘Make Money From Property In the Credit Crunch‘. Available to buy online: click here