In the basement

My three clients each own the lease (over 50 years) of a flat used as their sole private residence in a terraced house. The house consists of a derelict basement and three floors above.

Each flat lease includes one of the floors and part but not all of the basement. About six years ago the three leaseholders acquired the freehold of the whole building.

The whole of the basement (including those parts included in the three leases) has now been converted into two self-contained flats at a cost of about £200 000.

One flat has been sold for £250 000 and it is anticipated that the other flat will sell for a similar amount giving a profit to the three flat owners of about £100 000 each.

The reason for the large profit is because the ownership of the basement ‘shell’ meant that the conversion...