What is The Right of First Refusal

Long leaseholders have for the right of first refusal of their freehold, with some exemptions. The freeholder must offer the freehold to the leaseholders before selling the freehold to a third party to avoid committing a criminal offence.

It applies to the disposal of any property containing 2 or more flats held by qualifying tenants, as long as more than 50% of the flats in the property are held by qualifying tenants.

A landlord can obtain a valuation from a valuer and serve a section 5 notice on the leaseholders asking them to accept within a 2 month period. A landlord can also auction a freehold.

Landlords Exempt to the Right of First Refusal
  • Registered local authorities and housing associations.
  • Resident landlords in non-purpose built blocks of flats (House conversion) who occupy a flat in the premises as their only or main residence and have done so for at least 12 months ending at the date of the disposal

The Landlord decides to sell the Freehold on the open market
  • The landlord should serve a valid section 5 notice on at least 90% of the qualifying tenants.
  • More than 50% of the qualifying tenants must accept the offer within 2 months from the service of the section 5 notice.
  • The tenants have a further 2 months period from the Initial Period to nominate a purchaser.
  • The Landlord must issue to the tenant, the contract for disposing of the freehold within 1 month of the service of the nomination notice.
  • The Nominated Person has 2 months from the date of receipt of the contract to exchange and pay the deposit (The time limit can be extended by mutual consent)
  • Completion follows per the contract.

The Landlord decides to Dispose of the Freehold at Auction
  • The landlord must serve a valid section 5 notice on the tenants between 4 and 6 months prior to the auction.
  • Tenants to accept the offer within 2 months of a valid notice if they want to reserve their right to participate in purchasing the freehold.
  • Additional 28 days is given to nominate who will acquire the property if this is not completed in the first 2 months.
  • Once the landlord receives valid notices from the leaseholders, they must include in the seller’s pack at auction a notice in the conditions of sale that the freehold is being sold subject to the right of first refusal of the leaseholders.
  • If the property is sold at auction, the landlord must send a copy of the contract to the nominated person’s solicitor within 7 days of the auction.
  • The nominated person has 28 days to accept the contract and fulfil any conditions. The contract then has effect as if the nominated person and not the successful bidder had entered into it.

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