Right of First Refusal
If your landlord decides that he wants to sell his interest in the freehold of your property to a third party he must first give the “qualifying” leaseholders the right of first refusal. A “qualifying” leaseholder will normally be a leaseholder with a long lease normally at least 99 years long at the staring point.
The landlord gives the leaseholders this right of first refusal by serving a “Section 5” notice on them, however whether or not the right of first refusal arises depends on a number of factors including the number of flats in the block, the type of lease you have, and who the other flat owners are.
If you receive a Section 5 Notice from your freeholder giving you and the other leaseholders the right of first refusal to purchase the freehold title of your property you will have 2 months from the date of the Section 5 Notice to serve an Acceptance Notice. A valid Acceptance Notice is served if at least 50% of the leaseholders want to join in on the purchase.
If the leaseholders do not serve the Acceptance Notice on time, the freeholder will be entitled to sell the freehold title to a third party.
Unlike the lease extension and the right to purchase the freehold interest in a property where the leaseholder serves the notice on the landlord, the Landlord and Tenant Act 1987 does not provide you with any scope to negotiate the purchase price with the freeholder. As such, if you wish to purchase the freehold title you will need to do so at the price in the Section 5 Notice. However, this does not mean that the freeholder can request an unrealistic purchase price. The price must be reasonable and can’t be more than the price at which the freehold title is later sold to a third party.
If you decide not to accept the offer, the qualifying leaseholders may still be entitled to purchase the freehold title pursuant to the Leasehold Reform, Housing and Urban Development Act 1993. Please click here for more information (link to buying the freehold interest in a block of flats page)
However, please note that where there are only two flats in a building and the other leaseholder does proceed with the purchase of the freehold title (on an informal basis as one leaseholder alone cannot serve a valid Acceptance Notice under the Landlord and Tenant Act 1987) you will not then be entitled to purchase the freehold title under the Leasehold Reform, Housing and Urban Development Act 1993 and will lose your right. In addition, if the other leasehold later decides to sell the freehold – a Section 5 Notice will not be served on you as there must be at least two flats in the building held by qualifying leaseholders.
If you are a freeholder and you are looking to sell the freehold title of your property you must first seek legal advice as to whether or not the provisions of the Landlord and Tenant Act 1987 apply to you, otherwise you may be committing a criminal offence.
If you would like to discuss any aspects of the right of first refusal please email us or go back to our other contact details.