rights of first refusal

Posted by Admin - 13/07/2016

 

Constraints of first refusal rights can create precarious situations for landlords who wish to sell their flat.

Rights of first refusal were enforced by the Landlord and Tenant Act 1987 and amended by the Housing Act of 1996.  The sole purpose of issuing these rights was so that tenants of flats were able to secure the landlords asset if it were to be sold.

Aspects of flats which qualify for right of first refusal are detailed below:

  • The building contains at least two flats. The building can be residential or mixed but if mixed, more than half of the space must be residential.
  • More than half of these flats must be let to qualifying tenants.  This does not cover protected shorthold tenancies, employment linked tenancies, assured agricultural tenancies and business tenancies.
  • The landlord of the qualifying tenants already has plans to sell his interest.  This ensures that a landlord is not forced into selling their asset.

Section 5 Notice

If the previously mentioned aspects apply to the landlord selling their asset they must serve section 5 notices to all qualifying tenants.  This section offers the tenants the chance to purchase the property before it is officially put on the market.

If the landlord seller does not offer the asset to the qualifying tenants problems with the transaction can arise.  The tenants actually have the right to serve notice to a buyer by taking their place in the sale and forcing them to divulge all details.

It is now a criminal offence for a landlord to sell their property without serving a section 5 notice on the qualifying tenants and those who breach the act may find themselves on the receiving end of a hefty fine.  Solicitors who allow a clients sale to go through knowing that a section 5 has not been served are not fulfilling their duties under the Proceeds of Crime Act.

It can be a time consuming issue as the tenants have two months to accept the offer and a further two months to nominate a purchaser however sometimes serving a notice can be the only viable option.