Leasehold Property law. Personally delivered.
Leasehold Property law. Personally delivered.
A notice has arrived saying your landlord intends to sell the freehold, and the clock is already running. Under the Landlord and Tenant Act 1987 the leaseholders are entitled to buy first, on the same terms — but only if a majority act together, correctly and in time.
Section 5A and 5B notices · Acting for leaseholder groups · Regulated by the SRA · London and nationwide
Part I of the Landlord and Tenant Act 1987 says that a landlord who wants to sell the freehold of a qualifying building, or grant certain other interests in it, must first offer it to the leaseholders. The offer is made by a formal notice under section 5 of the Act, setting out the price and the principal terms of the proposed sale.
The leaseholders are not asked to negotiate. They are offered the same deal the landlord proposes to do with somebody else, and they have a fixed period in which more than half of them must accept. If they do not, the landlord is free to sell to the outside buyer — and the building has a new freeholder.
Section 5 notices come in several forms, depending on how the landlord proposes to sell. The form matters, because the timetable and the way the leaseholders take up the offer are different in each.
By far the most common. The landlord has agreed a price with a buyer, or expects to, and the notice sets out the property, the price, the deposit and the other principal terms. The leaseholders have at least two months to accept and a further two months to nominate a purchaser.
The landlord intends to put the freehold into an auction. The notice must be served between four and six months before the sale. There is no price to accept: the leaseholders reserve the right to step into the shoes of the successful bidder, at the hammer price.
Less common variants covering the grant of an option or right of pre-emption, a transfer not preceded by a contract, and a disposal for something other than money. The principle is the same; the mechanics differ.
You have learned of a sale after the event, usually from a letter introducing a new landlord. The right has not been lost. The leaseholders can require the buyer to hand over the terms and then to sell to them on those terms — see sold without notice below.
Whichever notice it is, note the date it arrived and keep the envelope. Every deadline in the Act runs from service, the periods are short for a group of neighbours who may never have met, and a building that organises itself in week six is in a very different position from one that started in week one.
The premises must contain two or more flats held by qualifying tenants, and those flats must make up more than half of the flats in the building.
Mixed-use buildings qualify unless more than 50% of the internal floor area, leaving aside the common parts, is in non-residential use — a more generous threshold than the 25% that applies to a collective enfranchisement claim.
Some landlords are exempt altogether, notably local authorities, registered housing associations and certain resident landlords of converted buildings.
Most long leaseholders are qualifying tenants. Business tenants, assured and assured shorthold tenants and tenants whose occupation goes with their employment are not, and neither is anyone who holds three or more flats in the building.
The right is triggered by a “relevant disposal” — in practice a sale of the freehold or a headlease, or the grant of a lease of the common parts, roof or airspace. A number of disposals are exempt, including transfers within a family, to a company that has been associated with the landlord for at least two years, and mortgages.
Whether a building qualifies, and whether a particular transaction is caught, is frequently less obvious than the notice suggests. Landlords sometimes serve notices they did not need to serve, and sometimes fail to serve notices they should have. We check both before advising you to spend money on either.
The decision is rarely just “yes or no”. In the first few weeks a building needs answers to six questions, and most of them have to be worked on at the same time.
A notice that omits required terms, gives too short a period or has not been served on the right people may be defective. That can be an advantage or a trap, and it should be established before anybody replies.
Acceptance needs more than half of the qualifying tenants, with one vote for each flat. Finding, informing and signing up that majority is the practical heart of the exercise, and it is where most buildings run out of time.
The price is the landlord’s, not the Tribunal’s. An independent valuation tells you whether it is fair, and how it should be shared between flats with different lease lengths. We work closely with Blakes Chartered Surveyors on exactly this.
If the asking price looks high, the leaseholders may do better letting the sale proceed and then buying under the 1993 Act, where the price is set by statute. We compare the two routes before you commit — see collective enfranchisement.
The purchase is made by a nominated person, almost always a company formed by the participating leaseholders. It has to exist, with its members and their contributions agreed, before the nomination period ends.
The deposit and the balance fall due on the landlord’s timetable, not yours. A participation agreement settles who pays what, what happens to the share of flats that do not join, and what each participant receives afterwards.
From service of the notice to completion usually takes five to seven months. Almost every step has a statutory deadline, and missing one generally ends the right for that sale.
We check the notice, the titles and the leases, confirm that the building and the sale are caught by the Act, and diarise every date. You receive a short note of where you stand and what has to happen by when.
The leaseholders are contacted, a valuer advises on the price and its apportionment, and those who wish to take part sign a participation agreement. We prepare the purchasing company in parallel so that it is ready when needed.
The requisite majority serve a notice accepting the offer. From that point the landlord cannot sell to anybody else while the leaseholders’ purchase runs its course.
The leaseholders nominate the person or company that will take the transfer. The landlord then has one month either to send a contract or to give notice that the sale will not proceed.
We investigate title, raise enquiries and approve the contract. The nominated purchaser must offer to exchange, with the deposit, within two months, and the landlord then has seven days to complete the exchange.
The freehold is transferred and registered. Participating leaseholders can then grant themselves 999-year leases at a peppercorn rent, which we deal with as a separate and straightforward step once the transfer is registered.
If the notice is under section 5B. An auction works differently. The notice must be served between four and six months before the sale, and the leaseholders must accept and nominate a purchaser before the auction takes place. The nominated purchaser then elects, no later than 28 days before the auction, to take over the contract made in the room. The landlord sends a copy of that contract within seven days of the sale, and the purchaser has 28 days to adopt it and pay the deposit — standing in the shoes of the successful bidder, at the price they bid. The leaseholders are therefore committing before they know the figure, which makes early valuation advice more important, not less.
Leaseholders often discover a sale only when a new landlord writes to introduce itself. If the right of first refusal applied and no valid notice was served, the sale is not void — but the leaseholders can undo its effect.
A buyer of a building to which the Act applies must notify the leaseholders of the purchase and of their rights. That notice is what starts time running.
The requisite majority can serve a notice under section 11A requiring the buyer to disclose the terms of the sale, including the price. It must be served within four months, and the buyer has one month to reply.
Within six months the majority can serve a purchase notice requiring the buyer to transfer the freehold to their nominee on the terms on which it was bought. The court can enforce it if the buyer does not comply.
A landlord who sells without complying with the Act, and without reasonable excuse, commits a criminal offence. That rarely helps the leaseholders directly, but it concentrates minds in a negotiation.
These deadlines are as strict as the ones that follow a notice, and they are easier to miss because nobody has told you they exist. If your building has changed hands and you were not offered it first, take advice straight away.
We act for landlords as well as leaseholders. For a freeholder the right of first refusal is a compliance exercise with real consequences: a defective notice, or none, leaves the buyer exposed to a claim by the leaseholders and the seller exposed to prosecution.
We advise on whether the Act applies, prepare and serve the correct form of section 5 notice on every qualifying tenant, and manage the timetable through to a sale to the leaseholders or to your intended buyer. We check for conflicts of interest before we take instructions.
If you are a freeholder seeking to dispose of your freehold interest, myfreehold.com is the appropriate site to refer to.
For our wider work for freeholders and investors, see landlords and freeholders.
Right of first refusal work is quoted building by building. The cost depends on the number of flats, how many leaseholders take part, the form of notice and how much of the timetable remains when we are instructed. We agree a fixed fee for each stage before we start, and the cost is ordinarily shared between the participating flats.
The landlord’s costs. Unlike a claim under the 1993 Act, the leaseholders do not ordinarily pay the landlord’s legal and valuation costs of a right of first refusal purchase. That is a real saving and belongs in any comparison between the two routes.
Withdrawing late. There is one exception. Leaseholders who accept an offer and then withdraw more than four weeks into the nomination period can be liable for the costs the landlord incurs after that point. The same applies in reverse where the landlord withdraws late. It is a reason to do the thinking before the acceptance notice, not after it.
The statutory periods do not pause while a building gets organised. We review a notice and set out the timetable promptly, and can often offer a same-day first conversation.
At Parklands, Heston we acted for the leaseholders on a section 5A acquisition of more than eighty flats with garages and parking spaces, followed by a block-wide renewal to 999-year leases. See also Coopers Yard, E8.
Sometimes the right advice is to decline the offer and enfranchise instead, or to do nothing. We set out the figures for each and say which we would choose.
The price and its apportionment are valuation questions. We work with RICS registered valuers from the first week so that the group decides with both halves of the advice.
Participation agreement, company, notices, purchase, registration and the new leases afterwards — handled together, with senior solicitor oversight throughout.
A formal offer, served under the Landlord and Tenant Act 1987, telling the qualifying tenants that the landlord proposes to sell an interest in the building and giving them the right to buy it first on the same terms.
A section 5A notice is used where the landlord proposes to sell by contract at a stated price. A section 5B notice is used where the freehold is to be sold at auction: there is no stated price, and the leaseholders’ nominee can take over the contract made with the successful bidder.
The notice must allow at least two months from service for acceptance, and a further two months to nominate a purchaser. The exact dates are in the notice. They cannot be extended by the leaseholders, so the practical deadline for organising the building is much earlier.
More than 50% of the qualifying tenants must join in the acceptance notice, with one vote for each flat. Those who do not take part are not forced to, and their flats continue as before under the new freeholder — the leaseholders’ own company.
Not through the notice, which is accepted or not on the terms offered. In practice some landlords will negotiate alongside the statutory process, and a valuation gives you the evidence to do so. If the price cannot be justified, collective enfranchisement may be the better route.
The landlord may sell to anyone during the following twelve months, provided the price is not lower and the terms are not different from those in the notice. You will then have a new landlord, and the right will not arise again until there is another sale.
It depends on the price. The right of first refusal is usually quicker, needs only a simple majority and does not involve paying the landlord’s costs, but the price is whatever the landlord has agreed with a buyer. Under the 1993 Act the price is fixed by a statutory formula and can be determined by the Tribunal.
If the Act applied, the requisite majority can require the new owner to disclose the terms of the sale and then to transfer the freehold to their nominee on those terms. Strict time limits of four and six months apply, running from when the leaseholders are notified of the sale.
Yes, unless more than 50% of the internal floor area, excluding common parts, is non-residential. That is a more generous threshold than the 25% that applies to collective enfranchisement, so some buildings that cannot enfranchise do have a right of first refusal.
A nominated person chosen by the accepting leaseholders. It is almost always a company in which the participants are members, formed for the purpose. We arrange the company and the participation agreement that governs it.
Yes, the nominated purchaser can withdraw. If that happens more than four weeks into the nomination period, the leaseholders who accepted may be liable for the landlord’s costs incurred after that point, and the landlord is then free to sell elsewhere for twelve months.
Yes. A landlord may decide not to proceed, and may be liable for the leaseholders’ costs if it withdraws late. It cannot then sell to somebody else without starting again with a fresh notice.
Owning the freehold does not lengthen the leases automatically. Once the transfer is registered, participating leaseholders can grant themselves new 999-year leases at a peppercorn rent, which is a separate but straightforward step.
If the building qualifies and the transaction is a relevant disposal, yes, and failing to do so is a criminal offence. We advise landlords on whether the Act applies and serve the notices. If you are considering a sale, myfreehold.com is the appropriate site to refer to.
Send us a copy of the notice, or simply the address of the building, the date the notice arrived and the number of flats. We will tell you whether it is valid, what the deadlines are, how the offer compares with buying the freehold under the 1993 Act, and what it would cost to act. Time matters more here than in almost any other leasehold matter, so please get in touch as soon as the notice lands. The first conversation is at no cost.
