The Right of First Refusal
Understanding the Right of First Refusal
The opportunity to buy a freehold can sometimes lead to apprehension or confusion; we can support you with advice, drawn from our vast experience in these matters.
The right of first refusal represents a vital safeguard for long leaseholders of flats in England and Wales. This right, established under the Landlord and Tenant Act 1987, allows qualifying tenants to purchase their building before the landlord can sell it to a third party. The right of first refusal requires landlords to offer their property to qualifying tenants before selling it to someone else.
The Legal Framework
The right of first refusal is firmly established under Section 5 of the Landlord and Tenant Act 1987, as amended. This legislation ensures that leaseholders are given priority when a landlord intends to sell the freehold. The long leasehold sector is heavily regulated by statute, providing protection to tenants and ensuring their rights are respected throughout property transactions.
Conditions for a Valid Offer Notice
If all conditions are met, a landlord intending to dispose of their interest must serve a formal notice to the qualifying tenants, offering them the first right of refusal.
The S3A notice must indicate that the disposal to the new landlord is subject to Part 1 of the Landlord and Tenant Act 1987, and it should inform the tenants of their right to acquire the new landlord’s interest in the building.
Exclusions from the Right of First Refusal
To qualify for the right of first refusal, several requirements must be met regarding the premises.
First, there must be a minimum of two flats. Additionally, no more than 50% of the premises can be used for non-residential purposes, and qualifying tenants must own more than 50% of the flats.
The Right of First Refusal Process
When a landlord intends to sell their interest in a building that contains flats with a right of first refusal, the Landlord and Tenant Act 1987 requires that they first offer it to the tenants before proceeding with any sale. The landlord must serve formal offer notices to the qualifying tenants, informing them of the proposed disposal and providing an appropriate timeframe for their consideration.
During this period, the tenants have the opportunity to review the landlord’s offer. The landlord is prohibited from selling to a third party or offering the property to anyone else at a lower price or under different terms than those presented to the tenants.
The legislation states that if a proposed transaction involves the disposal of an estate or interest in more than one building, the landlord must separate the transaction to address each building individually.
Each building must receive its own right-of-first-refusal notice. If all conditions are met, a landlord proposing a relevant disposal of their interest is required to serve a formal offer notice to the qualifying tenants.
When a landlord wishes to sell, they must serve a formal offer notice to at least 90% of the qualifying tenants.
If the qualifying tenants do not submit the acceptance notice or submit it after the offer period has expired, the landlord is allowed to sell the freehold or any other interest on the open market. However, the landlord must sell the property under the same terms or at a price that is equal to or higher than what was proposed to the tenants in the offer notice.
The right of first refusal procedure has strict time limits, and missing these deadlines will result in the loss of the tenant’s right to exercise this option.
What Happens When the Right is Ignored?
A landlord's failure to fulfil their legal obligations is considered a criminal offence. The right of first refusal is available to both leaseholders and regulated tenants, but it does not apply to houses that are occupied as single dwellings. If a landlord does not adhere to the statutory requirements regarding the right of first refusal, they may face criminal prosecution, the result of which could be a fine. Additionally, it is a criminal offence for a landlord to bypass the statutory procedure without having a reasonable reason.
Tenants’ Options When the Right is Breached
Qualifying tenants have the right to take action if the landlord does not follow the procedure for the right of first refusal. They can request information about the property being sold and the sale price. Additionally, tenants can compel the new landlord to sell the freehold to them at that price.
Seeking Legal Redress
Section 11 of the 1987 Act allows tenants to serve an information notice to the purchaser of a property, requesting details about the purchase price and the extent of the interest sold.
This notice must be issued within four months of the purchase and must be executed by the “requisite majority” of the tenants of the respective flats.
The purchaser is required to respond within one month with the requested information. If the purchaser fails to complete the transfer, the tenants will need to initiate court proceedings to enforce the sale.
How We Can Help: Our Role in Facilitating the Right of First Refusal
Our team of dedicated legal professionals is here to guide you through the right of first refusal process expertly. We will diligently evaluate whether your building and tenancy meet the necessary criteria and provide informed recommendations on your next steps. Our goal is to ensure that all parties fully understand their rights and obligations under the Landlord and Tenant Act 1987, thereby preventing costly disputes and unnecessary delays. We approach each case with genuine empathy and a steadfast commitment to your best interests.
Empowering Leaseholders
Proactive leaseholders understand the significance of organisation. Even in the absence of clear indicators suggesting a potential freehold sale, establishing a recognised group of tenants is a vital initial step. This proactive measure not only conveys readiness but also fortifies your position should the landlord consider a sale.
We offer comprehensive legal support to help you navigate the right of first refusal process smoothly, safeguarding the rights of qualifying tenants and assisting in the collective purchase of the freehold. We are wholeheartedly dedicated to reassuring you every step of the way.
Frequently Asked Questions
Find the answers to your questions here
Leaseholders should be aware that the law regarding the right of first refusal does not allow them to challenge the price stated in the offer notice. The landlord determines this price, and it cannot be negotiated or contested in a tribunal.
However, suppose the tenants decline the initial offer. In that case, the landlord is prohibited from selling the property to a third party at a lower price or under different terms for a period of 12 months without first re-offering it to the tenants. Therefore, while leaseholders cannot demand a lower price, they are protected from being undercut after rejecting the initial offer.
If a landlord ignores the right of first refusal and sells the freehold to a third party, the tenants still have options. Under the Landlord and Tenant Act 1987, they can take action, including serving a notice to the new owner requesting details of the transaction, such as the price paid for the property.
Qualifying tenants have the opportunity to pursue legal action, with the assistance of a lawyer, to compel the new owner to sell the freehold to them at the price the new owner paid initially. While the sale to the third party is valid, the new owner will be required to sell the freehold to the leaseholders.
The right of first refusal offers qualifying tenants not only the opportunity to purchase the freehold but also enhances their control over the management of the building.
By acquiring the freehold, leaseholders can play a pivotal role in shaping long-term maintenance and service standards, alleviating worries about potential mismanagement by external landlords. It is noteworthy that the failure to uphold this right is a prevalent concern, highlighting its importance.
Furthermore, the right to manage reinforces this context, empowering tenants and fostering a more engaged community. This initiative truly benefits everyone involved and nurtures a more responsible management approach.
Understanding the lease terms, ground rent, service charges, and potential extension costs is also important. This said, we are here to assist you in reviewing the costs and agreements to ensure they both align with your expectations.
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