If a landlord is proposing to dispose of a freehold, Part 1 of the Landlord and Tenant Act 1987 (LTA 1987) gives certain residential tenants a right of first refusal.
Our Property Litigation Team is well versed in dealing with, and also challenging, the process of the right of first refusal and are able to make the process as smooth as possible. They are members of the Association of Leasehold Enfranchisement Practitioners (ALEP), who are a professional membership association of organisations experienced in the residential leasehold sector.
The Process of a Right of First Refusal
There are a number of criteria that a tenant would have to meet and as well as rules that a freeholder must consider. For more information on these considerations please read our Legal Hub article “When does the Right of First Refusal apply and what are the benefits?“. Once both the tenants and landlord are satisfied that the criteria have been met, there are a number of steps involved in the Right of First Refusal process:
Do I qualify for the Right to Manage?
There are a number of requirements which the tenants and the building must comply with to be eligible:
Section 5 Notice
A Landlord will initially serve a S.5 Notice. This notifies the tenants of the proposed disposal and gives them two months to respond. The tenants then need to take the following steps:
- Initial Survey & Valuation – A survey and valuation should be carried out so that the tenants understand the condition of the building, any potential risks or issues, and the potential costs involved.
- Participation Agreement – For larger buildings a contract should be entered into between the tenants so that they know what their rights and responsibilities are during the Right of First Refusal
- Incorporate a company to be the Nominee Purchaser – You cannot register more than four people as the legal owner of a property. A company is usually incorporated to act as the entity purchasing the freehold. A company enables ownership of the freehold to remain constant whilst membership of the company changes with the ownership of the flats.
Section 6 Notice
The Tenants then respond by serving a S.6 Notice. This notice accepts the proposed terms contained in the S.5 Notice.
If the disposal is a sale on the open market:
- The Nominee Purchasermust be sent a copy of the contract within one months of the S.6 Notice;
- The Nominee Purchaserhas two months to sign and return the contract and pay the deposit; and
- The landlord has 7 days from receipt of the signed contract to exchange.
If the disposal is by auction:
- The Nominee Purchaser must notify the Landlord they wish to proceed at least 28 days before the date of the auction;
- The Nominee Purchasermust be sent a copy of the contract within 7 days of the auction;
- The Nominee Purchaserhas 28 days from receiving the contract to accept the terms of the contract and fulfil any conditions required on exchange (e.g. pay a deposit); and
- The Nominee Purchaserhas 28 days from receiving the contract to complete.
The cost to respond to the Right of First Refusal
Once the S.5 Notice is accepted the tenants become liable for the landlord’s reasonable surveyor costs and reasonable legal costs and other costs specified in the S.5 Notice.
The tenants will have to pay the value of the freehold to the landlord.
How can Pinney Talfourd help?
Pinney Talfourd have experienced and professional solicitors who regularly deal with the right of first refusal process and challenging right of first refusal claims.
We have a strong working knowledge of the LTA 1987 framework and the conveyancing process to ensure a smooth process from service of notices to registration.
