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Right of first refusal – how to react to an offer notice?

By Tornike Purcell, Associate at Eversheds Sutherland LLP, and Nicholas Kissen, Senior Adviser at LEASE

September 2018

We begin this article with an example question:

I own a flat in a block where there are 49 other flats also under long leases. Recently, the landlord has offered to sell us the freehold of the block for £20,000. Each of us received a formal notice (the offer notice) offering us the freehold and giving 10 weeks to respond if we are interested in taking it up. How do I participate?

Usually when a landlord is proposing to sell the freehold of a building containing flats, they must first offer it to the leaseholders, collectively, before selling – or exchanging contracts on a sale – to someone else. This procedure is known as the Right of First Refusal. The law governing the Right of First Refusal is complex so for leaseholders in receipt of an offer the taking of early and expert legal advice is essential.

Organising after the offer notice is received

The timeline for progressing the Right of First Refusal is below

  1. Within 10 weeks of the landlord’s offer: More than 50 per cent of the leaseholders (i.e. at least 26 leaseholders in this particular block) must combine to accept the landlord’s offer (the landlord must give a minimum of two months) deadline given in the offer notice;
  2. Within two months after accepting the offer: The leaseholders then have to notify the landlord of the identity of the person who will acquire the freehold. With a block of this size this may well be a company in which each of the participating leaseholders is a member. Under the law of the Right of First Refusal this company will be known as the “Nominated person”;
  3. Within one month of receiving the notice identifying the Nominated Person: The landlord must provide the Nominated Person with a Contract for the sale of the freehold;
  4. Within two months from the date of receipt of the contract: The Nominated Person has to pay the deposit for the freehold and exchange contracts;
  5. The completion date is agreed on exchange of contracts.

After completion

Acquiring the freehold under the Right of First Refusal will generally mean taking responsibility for the building. Inevitably, leaseholders will assume what for some may be unfamiliar responsibilities.

They will take charge of decision-making in relation to such matters as building insurance, enforcing lease covenants, management, providing services and the overall running of the building.

If not entirely managing the block by themselves, engaging relevant professionals for such tasks should be considered and appointed at the appropriate time; for instance, managing agents, solicitors, insurance brokers.

Points to note

Further information

LEASE is governed by a board, appointed as individuals by the Secretary of State for the Ministry of Housing, Communities & Local Government.