The Right of First Refusal – Who does it apply to?
The Landlord and Tenant Act 1987 (the 1987 Act) applies to the immediate landlord in a building. So, if a block of flats is owned by a freeholder who grants a 999 head lease over the building to Company A, and Company A then grants 125 leases to each flat, the 1987 Act would apply to Company A and not the freeholder. The freeholder could sell their interest without having to offer it to Company A, whilst Company A would have to comply with the Act and offer the right of first refusal to tenants in the building before selling.
Some landlords are exempted from the act, such as local authorities and charities. If you are unsure whether you are exempt, ask an expert solicitor today.
What are Qualifying Buildings?
For the 1987 Act to apply, the building must contain at least two flats, have no more than 50% non-residential use, and more than 50% of the flats in the building must be owned by Qualifying Tenants.
Who are Qualifying Tenants?
A Qualifying Tenant is a tenant who owns their flat on a long lease (e.g. granted for over 21 years – most leaseholders will be considered qualifying tenants). If you live in a flat on an Assured Shorthold Tenancy you will not be considered a Qualifying Tenant.
What Disposals does the Act apply to?
Any sale or transfer of a Qualifying Landlord’s interest in the building will be subject to the Act, whether they give their interest away or seek to sell it at market value. Other disposals include transferring part of the freehold title to an individual tenant, such as loft space to an upper maisonette leaseholder or extending a ground floor flat. Where the Right of First Refusal is triggered, the Landlord must comply with the 1987 Act.
What Notices must be served?
A Notice must be served under Section 5 of the 1987 Act, and as such is known as a Section 5 Notice. There are five different forms of Notice depending on what disposal is taking place:
- Section 5A – Sale by contract
- Section 5B – Sale by public auction
- Section 5C – Grant of an option or right of pre-emption
- Section 5D – Sale not pursuant to a contract
- Section 5E – Sale for a non-monetary consideration
Whilst some of the detail in each form will differ, the main principles are the same for all and must be complied with. The Notices must:
- Be served on at least 90% of Qualifying Tenants in the building.
- If a Right to Manage Company has been sent up, a notice must also be served on the company.
- Give a specific deadline for the tenants to respond to.
Section 5A and 5B Notices are the most common. If a Notice is served in these forms, the deadline for tenants must be:
- Section 5A – Tenants must be given at least two months to respond from the date of the notice.
- Section 5B – The Notice must be served between 4 and 6 months prior to the date of the auction and the deadline for tenants to respond must end at least two months prior to the auction date.
Next Steps
If you have received a Section 5 Notice from your landlord, or you are a landlord who wishes to dispose of their interest in a building, please get in touch and we can assist you with the next steps.
If you have any questions on any of the above do not hesitate to contact our property team on +44 (0) 207 228 0017 or via the form below.
Contact our property team today to discuss any of the above in more detail by submitting the form below.
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