It is important to know your rights as a landlord or tenant. A Tenant’s Right of First Refusal plays a crucial role when a landlord wants to sell a building which contains flats. It is paramount that both landlords and tenants know of the tenant’s right before a landlord sells their building, otherwise the whole transaction could be at risk.
Who is a qualifying tenant?
In this instance, reference to a qualifying tenant usually means a company or person who holds a residential flat within a building. It can sometimes extend to sub-tenants, statutory tenants and some short term or periodic tenancies. There are some excluded tenancies, for example, Assured Shorthold Tenancies and tenants who hold a tenancy of three or more flats in the same building.
Who is the landlord?
The landlord usually refers to the company or person who owns the whole building in which the flats are situated. The landlord is usually responsible for the maintenance and repair of the common parts of the building. Sometimes, there is an intermediary landlord and therefore it is necessary to consider if the right applies to them as well. Some landlords are completely exempt.
When does the Tenant’s Right of First Refusal apply?
A Tenant’s Right of First Refusal applies when a landlord proposes to sell / dispose of the whole or part of their building which contains two or more flats held by ‘qualifying tenants’. In such scenarios, the landlord must satisfy certain conditions before the building can be sold to a third party. The right does not usually apply to mixed use properties.
What is the Tenant’s Right of First Refusal?
A Tenant’s Right of First Refusal means that, if a landlord wants to sell their building, they must first offer it to all qualifying tenants.
The procedure is set out in the Landlord and Tenant Act 1987 (“the LTA 1987”). In summary, it is as follows:
- The landlord serves notices on the tenants offering them the opportunity to purchase the building. The offer notices will set out the details of the proposed sale, such as the price and other key terms. The notice is known as a Section 5 Notice.
- The tenants must discuss whether they would like to purchase the building and if so, they must accept the offer within the time frame stated in the notice.
- The notice period for a Section 5 Notice must be at least two months.
- One vote is allocated to each flat and any agreement to purchase the building must include above 50% of the total qualifying tenants.
- If the requirements are met, the tenants must agree to nominate one tenant to purchase the building on their behalf. This person is known as the nominated purchaser.
- The tenants must serve a notice on the landlord accepting the offer to purchase the building. This is known as a Section 6 acceptance notice
- If the tenants fail to accept the landlord’s offer within the specified period of time, the landlord is then free to sell the building to a third party. The landlord can sell any time during the subsequent 12 months provided that the sale is on the same terms as those set out in the offer notices.
- If the tenants wish to purchase the building and all the requirements have been met, the parties will then begin working towards completion of the purchase. The landlord must inform the third party that they can no longer sell the building to them.
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The above is only a summary of the Tenants’ Right of First Refusal and the procedure may vary depending on the facts in each case; there are hurdles that both landlords and tenants must overcome to ensure that they meet the requirements.
If you require advice on this area of law, please feel free to give us a call on 020 7636 2100.