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Right of First Refusal

Right of First Refusal

When a landlord is planning to sell the freehold of a building that contains residential flats, he or she must, before entering into a contract with the purchaser, give the leaseholders of those flats the opportunity to purchase the building on the same terms as the proposed purchase. He or she must serve a notice on each of the leaseholders, who are then given a period to consider whether to take up their right of first refusal. Failure to serve the notice, and/or selling prior to its expiry, is a criminal offence.

Obviously, if you are a landlord it is crucial that you take advice on this and make sure you fulfil your obligations. This is where Housing and Property Law Partnership (HPLP) can help.

Do I Have the Right of First Refusal?

In order for the right of first refusal to apply:

  • The building in question must contain at least two flats.
  • No more than 50 percent of the building may be in non-residential use.
  • More than half of the flats in the building must be held by "qualifying tenants."
  • The right may not arise if the landlord himself or herself lives in the building.

Leaseholder's Considerations:
So What Do I Do When I Need to Serve Section 5 Notices Offering the Freehold for Sale?

It is imperative that you instruct a solicitor familiar with this niche area to deal with the section 5 offer because if you do not reply to the notice in time and correctly you will lose all the protection of the statute and the landlord can then sell that freehold to anyone he or she chooses for the price specified in his or her notice.

You will need to take the advice of a specialist valuer who has experience in this field. We work closely with a number of reputable valuers and can assist with your choice. The valuer can help guide you and confirm whether the price at which the freehold is being offered to you for is good value or not.

A Landlord's Considerations

As a landlord of a building with some residential flats owned on long leases (and other qualifying tenancies), you will be aware that when you plan to sell the freehold of that building you must, before entering into a contract with the purchaser, give the leaseholders/tenants of those flats the opportunity to purchase the building on the same terms as the proposed purchase.

This is commonly known as the "right of first refusal" under section 5 of the Landlord and Tenant Act 1987 (the 1987 Act).
You must serve a notice on a required number of the leaseholders/tenants, who are then given a period to consider whether to take up their right of first refusal. Failure to serve the notice, and/or selling prior to its expiry, is a criminal offence.

If you are a landlord who must comply with the 1987 Act, it is imperative you take immediate legal advice, because the 1987 Act imposes strict requirements that must be met and then strict deadlines to follow to ensure you comply with the right of first refusal. Provided you comply and have given the tenants an opportunity, but they do not take up the offer to buy, you can then sell that freehold to anyone you choose within the following 12 months for the price it was offered to the leaseholders.

Why Choose HPLP?

We are recognised experts in this complex and technical area of law. There are many statutory deadlines and dates to follow, and missing any one of them may mean that you lose your right to sell or buy the freehold. We act for tenants and landlords, and we are fully up to date with the intricacies of this law and can help tenants and landlords.

HPLP also offers clients free initial advice up to a half-hour and a fixed fee estimate so you know what you will be charged should you choose to go ahead.

To find out if it might be suitable to buy the freehold of your block of flats, or if you are a landlord who needs help on how to comply with statutory requirements, contact either Ash Oberoi to discuss your situation in greater detail.

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