When does the Right of First Refusal apply and what are the benefits?

Part 1 of the Landlord and Tenant Act 1987 (LTA 1987) gives certain residential tenants a right of first refusal where the landlord is proposing to dispose of the freehold.

Where the LTA 1987 is applicable, there is a prohibition on the freeholder making any disposal unless:

• i.the landlord has first served formal offer notices on the “qualifying tenants” of the flats in accordance with Section 5 of the LTA 1987; and
• ii.the disposal is made in accordance with the requirements of Section 6 – 10 of the LTA 1987. 

_{When does the Right of First Refusal apply?}

The Right of First Refusal only applies where certain criteria are met:

• The disposal must be a disposal of legal or equitable interest (does not include the grant of a tenancy for a flat, a disposal to an associated company, disposal to a family member etc)
• There must be at least two flats in the building containing qualifying tenants (i.e. a tenant who was granted a residential lease of over 21 years).
• At least 50% of the total number of flats in the building must be owned by qualifying tenants.
• At least 50% of the qualifying tenants must want to accept the right of first refusal.
• The building or part of the building must be self-contained i.e. structurally detached from other buildings or parts of buildings.
• No more than 50% of the building can be used for non-residential purposes (e.g. commercial leases).
• None of the exclusions apply (e.g. the landlord must not be a resident landlord).

_{Benefits of accepting the Right of First Refusal}

Accepting the right of first refusal has a number of benefits:

• Tenants stop the disposal of the Freehold to an unknown third party who could change the management of the building.
• Tenants can extend their leases to 999 years without having to pay a premium or the landlord’s legal or valuation costs;
• New leases can be drafted to remove any inconsistencies or errors e.g. inconsistent wording, poor drafting, non-compliance with the requirements of the Council of Mortgage Lenders; and
• Tenants gain control of the management of the building and the appointment of the Managing Agent.

_{Legal Advice}

For tenants, whilst this can be a complicated process, accepting your right of first refusal on a freehold can hold many benefits. If you meet the eligibility criteria above and wish to proceed please visit our Right of First Refusal – S.5 LTA 1987 service pageto find out about the process and how our team of ALEP member experts can help you.

ALEP is the Association of Leasehold Enfranchisement Practitioners, a professional membership association of organisations experienced in the residential leasehold sector.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.