As many of you will no doubt be aware in relation to long leasehold property there is generally a right of first refusal to the freehold title when it comes to be sold. The purpose of this blog post is to give a brief overview of the framework.
Part 1 of the Landlord and Tenant Act 1987 contains the statutory provisions governing when Leaseholders have this right, the process to be adopted and the penalties for non-compliance. Certainly any freeholder and their advisers before dealing with the freehold title need to consider whether the provisions will apply.
So what is required?
For the Act to apply the premises must contain 2 or more qualifying flats ( ie residential flats with lease terms originally of more than 21 years) and the number of such flats must be more than 50% of the total number of flats and there is not more than 50% of the floor area of the building occupied by commercial parts.
Next consideration needs to be given as to whether the disposal is “relevant”. Generally an outright transfer of the freehold title would be covered as would any other estate/disposal save for certain specific exceptions. The most relevant examples of exceptions are: any lease of an individual flat, disposal by a liquidator or trustee in bankruptcy, disposal to an associated company or disposal under the Leasehold Reform Housing and Urban Development Act 1993. Full details of relevant disposals are set out in section 4 of the 1987 Act.
If the Landlord is intending to make a disposal he then needs to serve a Notice. Often these are simply referred to as Section 5 Notices being the section of the 1987 Act detailing the requirements. The Act lists various types of Notice which need to be served dependant upon the circumstances of the disposal e.g by auction or private treaty. In general terms the Notice tells the Leaseholders what the Landlord intends to do. If then the Leaseholders want to purchase, not less than 50% of the Leaseholders collectively, must serve a response notice by a date given in the Landlords original Notice. They can then force the Landlord to sell the interest to them on the same terms as the intended disposal. The time limits are strict and if no notice is served by the Leaseholders the Landlord can proceed with their intended disposal provided they do so within 12 months of the date by which the tenants should have replied.
As can be seen Landlords have been known to serve a section 5 Notice even when they have no intention of selling to try and draw out of Leaseholders whether they can be persuaded to buy and often to pay a higher price than perhaps a collective enfranchisement would achieve. For this reason Leaseholders are certainly advised to take professional advice on any Notice served to consider whether a purchase is the best way to proceed for them.
If a Leaseholder does become aware that a disposal has taken place without Notice being served then there are various courses of action open. Firstly this may be a matter which could be reported to the local Tenancy Relations Officer as the Landlord will have committed an offence for which they could be prosecuted and if found guilty fined. Secondly the Leaseholders can (assuming there is the requisite majority) in effect require the Purchaser to dispose of the interest they acquired to the Leaseholders on the same terms as per their contract with the Landlord. Once again there are strict time limits and so as soon as the Leaseholders become aware of a disposal they should urgently take advice as generally they will only have 6 months to enforce their rights under the 1987 Act.
As with many aspects of long residential Leasehold Law the process is relatively complicated and full of pitfalls for the unwary. Both Landlords and Leaseholders should look to take advice at the earliest opportunity to ensure that their respective positions are properly protected.