Right of first refusal under the Landlord & Tenant Act 1987
Right of first refusal is important to understand.
how does it affect you?
Freehold blocks of flats can be good investment properties, but it is important to be aware of the law surrounding the sales and purchases of these properties.
If you own (or are looking to purchase) the freehold of a block of flats, the Landlord and Tenant Act 1987 (LTA 1987) is an important piece of legislation that affects the rights of the flat owners and will need to be given careful consideration at the time of any sale or purchase.
Likewise, flat owners should be aware of the LTA 1987 and how it can affect them.
What is the right of first refusal?
The LTA 1987 gives qualifying owners of leasehold flats the right of first refusal to purchase the freehold – this means that if the freeholder wishes to sell the building, they must first offer the leaseholders the chance to purchase.
This must be done by way of a formal notice, following certain prescribed steps – and the leaseholders will then have a period of time (usually 2 months) to decide whether they wish to accept the offer and purchase the freehold.
The offer can only be accepted collectively, by a majority of the leaseholders – so if (for example) only 4 out of 10 qualifying flat owners express an interest in buying the freehold, they would not be able to exercise their right of first refusal, and the freeholder would be able to sell the property to a third party (on the same terms as it was offered to the leaseholders).
What are the consequences for not complying with the LTA 1987?
If the owner of a freehold block of flats sells the property without first offering it to the leaseholders as set out above, they may be committing a criminal offence. Careful consideration should therefore be given to the LTA 1987 and whether it applies to the proposed sale; and it is important to take legal advice to ensure the correct steps are taken and the right of first refusal is offered to the qualifying tenants where appropriate.
What do I need to do when selling my freehold property?
When selling the freehold of a block of flats it is important to consider whether the LTA 1987 applies – generally, it will apply to any building consisting of two or more flats held by qualifying tenants.
If your building is caught by the LTA 1987 then you will need to serve valid offer notices on the qualifying tenants, before proceeding with any sale to a third party.
What do I need to do if I am purchasing a freehold block of flats?
The main obligations in the LTA 1987 (and consequences for failing to comply) affect the owner/seller of a freehold block of flats, but a purchaser can also be affected. This is because a sale of the building without following the necessary steps in the LTA 1987 could lead to the leaseholders serving a notice on the new owner and calling for the building to be transferred to them. It is therefore important for anyone considering purchasing a freehold block of flats to take legal advice on this point and ensure that the seller complies with their obligations during the sale process.
What if you think your building has been sold in breach of the LTA 1987.
If you are the owner of a leasehold flat and you believe the freehold has been sold in contravention of the LTA 1987 (for example if you did not receive an offer notice before the building was sold) you may be able to ‘step into the purchaser’s shoes’ and acquire the building from them, at the same price.
This will require careful consideration (and collaboration from the majority of the qualifying leaseholders).
If you have a question relating to the Landlord & Tenant Act or the Right of first refusal…Talk to Tollers on 01604 258558, our experienced Commercial Property team is on hand to guide you through and advise you on your options.
More information can be found by visiting the Leasehold Advisory Service which has helpful guidance – Right of First Refusal – The Leasehold Advisory Service (lease-advice.org)