Legislation: Landlord & Tenant Act 1987

What is it? Where a freeholder is disposing of an interest in the freehold they are required to offer leaseholders the right to buy that interest first before selling it to a third party.

Disposal of an interest

Exempt disposals: The majority of disposals will trigger Right of First Refusal (RFR), but some are exempt, such as:

Qualification

The Building

To be subject to RFR the building must:


Qualifying tenant

Qualifying tenant includes leaseholders and some fixed term or periodic tenancies, but not assured or assured shorthold tenancies. Someone who is a tenant of more than 3 flats in the building will not be a qualifying tenant of any of those flats.

The Landlord

RFR applies to the immediate landlord of the tenants. That is the individual to whom they pay their ground rent and who is entitled to possession when the tenant’s lease finishes.

RFR does not apply to some landlords. These include most housing authorities such as councils, housing associations, charitable housing trusts and certain resident landlords.

An exempt resident landlord is one who lives in the building and where two conditions apply

  1. The building is not a purpose built block, for example a converted house, which has been converted into flats since its original construction and
  2. the landlord genuinely lives in the building as his only or principal residence and has done so for more than 12 months.

The Procedure

There are different procedures for different methods of disposal, for example a basic sale in the open market with or without a contract, disposal by auction, grant of option, right of pre-emption or where no money is changing hands. For the purposes of this fact sheet, we will assume it is a sale of the freehold in the open market further to a contract.

Offer notice

Prior to exchange of contracts, the landlord must serve an offer notice on the qualifying tenants offering the freehold interest at a specified price. The notice gives the qualifying tenants two months to accept the offer.

Acceptance and nominee purchaser

To accept the offer, more than half the qualifying tenants of flats in the building must accept the offer jointly in writing to the landlord within two months. Within a further two months the qualifying tenants must nominate a purchaser. For example, a company that they have set up to hold the freehold.

Within a further one month the landlord must send a contract to the nominee purchaser, who then has a further two months to sign and pay the deposit. Contracts are then exchanged within seven days and completion takes place on the date specified in the contract.

Non-acceptance of the offer of RFR

If the qualifying tenants do not accept the offer of RFR within the two months period the landlord is free to sell the freehold to a third party, but at not less than the figure offered in the offer notice for the next 12 months.

Failure to give RFR

If a landlord sells an interest in the freehold which should have been subject to RFR, more than 50% of the qualifying tenants have the right to serve an “information notice” on the new freeholder requesting details of the terms of the sale. The new freeholder is required to provide this within one month.

Once they have information on the terms of the sale more than 50% of the qualifying tenants can serve notice on the new freeholder requiring him to sell them the freehold on the same terms as he purchased.
Please note this fact sheet is a summary of this complex area of law.

Please see our full advice guide for more details; you may also need to seek further advice.

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

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