Hi, thanks for your enquiry.
To enable me to answer you fully, could you confirm if the upstairs owner has a Lease for the upstairs? (Normally, the owner of the "house" would grant a Lease for the upstairs and a Lease for the downstairs). If you could give me as much information as possible, that would be great.
I look forward to hearing from you.
Yes you could have two leaseholds in order to sell, without the requirement of forming a company.
If put into a company, disposal or disposition may appear more straightforward than it being in the name of an individual, this is because it will only require a transfer of the shares of the company as opposed to a transfer of title at HM Land Registry.
As it currently stands, either of you may find it difficult to sell as most lenders do not like to lend on flying freeholds.
I hope this answers your question. If so, kindly rate the answer and provide feedback.
If you have any further questions, please do not hesitate to ask.