Separate the freehold and leases?

A leaseholder owning the 'share of freehold' in personal names is not a good idea. It means that each time a leaseholder sells their flat and their share of freehold - the freehold needs to be sold from the old peeps to the new peeps.

It's better to sell the freehold to a company with two shares. Then when the leaseholders change, the freehold ownership can/could change by way of a share transfer ... which incurs no conveyancing charges. Not cheaper now, but cheaper forever in the future.

Thom
I am not quite clear what the end position will be. The freehold and a lease cannot be held in the same hands. A and B can be landlords of A alone and A can be landlord of A and B but A and B cannot be landlords of A and B. When you have cleared that up, I suggest you voluntarily "enfranchise" and grant long leases at a nominal rent, say £100 a year.
I would not think of selling the freehold separately. You just create problems for the leaseholders if they don't own a share in it. It will be simpler to sell the first lease to the first buyer and the second lease plus freehold to the second buyer. Having acquired the freehold I would not split it until you leave altogether. This is because you then control the timing and quality of repairs and maintenance.

In property law the freeholder (lessor/landlord) ie owner of the building would grant a lease to each flat (lessee/tenant) for X number of years and could be a person (company) not related to the leaseholds.
Buying or acquiring a share of the freehold does not change that relationship even though the "owner" of one or both of the leasehold titles is also now a named freeholder.
Once you and your partner purchase the ground floor flat the share of the freehold is transferred from you and seller to you (50% for the upper flat +25% ground floor goat) and your partner (25%) with the upper lease in your name and the ground floor lease in joint names. After registration is completed you could submit a TR1 to change to 50/50 of the freehold into your joint names.
Personally I would do a Deed of Variation as opposed to a surrender and regrant of each lease. Varying the annual rent (ground rent) to a peppercorn and the term to 999 years. Dead simple to do. Also do it before you think of selling as currently Land Registry are taking minimum of 9 months to register unless they agree to expedite.
When you come to sell each flat I would sell each with the benefit of 50% of the freehold.
There would be no financial gain for anyone to buy the freehold sold as a separate entity as only worth money ie Ground rent plus management fee (not worth the hassle) when enfranchising and as you're intending to extend the term no £.
Once leasehold reform comes in then leaseholders are likely to get equal shares in the freehold anyway.

Reply to the comment left by Judith Wordsworth at 17/09/2021 - 10:25"Personally I would do a Deed of Variation as opposed to a surrender and regrant of each lease. Varying the annual rent (ground rent) to a peppercorn and the term to 999 years. Dead simple to do."
Judith, varying the lease term to 999 years, necessarily as a matter of law, operates as a surrender and re-grant of the lease. However, instead of one lease document being the only title document the deed of variation coupled with the previous lease forms the 999 year lease. I would not recommend it.

Thank you for such helpful comments!

The long term goal is that there are some areas in the property which are not assigned to either flat in the leases. I intend to allocate these areas to the upper flat, make some simple changes to both, and then probably move on in the next few years once I have recuperated the SDLT/legal etc costs by way of rental income from the new ground floor flat purpose.

The issue (as a complete novice) that worries me is that the freeholder and lessee for the ground floor flat will be the same 2 people (whilst AB will be lessor and B-alone lessee for upstairs flat). As long as all the provisions in the freehold and leases remain arranged for separate parties - is this problem navigable?

1) Selling the freehold separately is not really going to be an option. No-one will want the flats on that basis and likely the leasehold legislation reforms will prevent it in future. Not sure anyone would want to manage only two flats as the profit is not likely to be worth the work.

2) If you are not buying with a mortgage then you can own freehold and leasehold in the same name(s). Strictly you can't have a contract with yourself but if no-one else is involved it is possible. I did this when I bought a flat for cash in a block in which I had inherited the freehold. When I later sought to obtain a remortgage, the freehold had to be transferred into different names so my solicitor set it up (deed) in joint names with someone else in 99:1 ratio. In your case it would depend how you want to do it but you need to take advice

3) If you're going to redraft the leases you need specialist advice. I would do it when you come to sell not before.

4) I also have a shared (one of four) freehold flat in another block. Transferring the title of the freehold is not a problem at all and made no significant difference to the conveyancing costs. A company requires regular filing and if that doesn't happen can potentially be struck off with dire consequences for freehold ownership.

5) I would make sure both flats ultimately have a share of the freehold, although I take Ian's point about control while you still own one, although you would still have to get the funds from the other flat. With that in mind you might want to sell them at the same time.