I own a leasehold flat and my Landlord is selling the freehold; can I buy it?

When a freehold Landlord is selling all or part of their freehold title, often they are obligated to offer their leasehold tenants the right to buy before offering it up for sale on the open market. This is known as the “right of first refusal” which was introduced by the Leasehold Reform Act 1987.  You cannot force a landlord to sell under this legislation only respond to the landlord’s offer which he is able to withdraw up to the time contracts are exchanged.  Failure to comply with the obligation will result in the landlord committing a criminal offence.

The Criteria

In order for the right of first refusal to apply, a number of criteria must be satisfied in relation to the premises, tenant and landlord.

The Premises

The following criteria must be met in relation to the premises in order for the right of first refusal to apply;

• The Landlord’s premises must comprise the whole or part of a building.
• The premises must comprise two or more flats owned by ‘qualifying tenants’ as detailed below.
• At least 50% of all of the flats at the premises must be owned by ‘qualifying tenants’.
• At least 50% of the premises must be used for residential purposes.

The ‘Qualifying Tenant’

Many tenants are ‘qualifying tenants’ for the purpose of the right of first refusal, including leaseholders and those with fixed term and periodical tenancies. There are however a number of tenancies for which the right to first refusal does not apply including, assured tenancies, protected shorthold tenancies and tenancies terminable at the end of employment, amongst others.

The Landlord

The right of first refusal applies when the immediate landlord of the tenant decides to sell their interest i.e. the landlord who collects rent or ground rent from the tenant and who is entitled to vacant possession when the lease comes to an end.

The right of first refusal does not apply to certain landlords, including most local authorities and housing associations.

The Process

Where all of the qualifying criteria are met the Landlord cannot dispose of his freehold interest on the open market, until the following process has been followed;

1. The Landlord must serve what is known as a ‘section 5 notice’ on the qualifying tenants. This is the offer notice which will give the qualifying tenants the opportunity to purchase the freehold interest and specify the terms, including price, and must remain open for acceptance for at least 2 months after being issued.
2. Assuming the Landlord’s offer is sufficiently attractive it must be accepted by at least 50% of the qualifying tenants within the specified period for the process to proceed. Those tenants must then tell the Landlord who will be purchasing the freehold interest and often a company is set up for this purpose. The matter will then proceed to the usual exchange of contracts.
3. If the Landlord’s offer is not accepted by the qualifying tenants, the Landlord may then sell to another party but not on terms more favourable than those proposed in the offer notice to the tenants.

Failure to comply

Where a Landlord sells their interest in the freehold to a third party without complying with his obligation to give the tenants a right of first refusal, it may still be possible for the qualifying tenants to acquire this interest. To do so, more than half of the qualifying tenants must serve a notice on the new freehold owner requesting details of the purchase.

Once they have this information, those tenants can then serve a further notice requiring the new freeholder to sell his interest on the same terms as he purchased it.

This blog is intended to provide a basic outline of the rules relating to the right of first refusal. For more in-depth advice and guidance, please contact us on 01206 700113 or email [email protected]

Credit – blog post written by Lauren Hancock.