The Landlord and Tenant Act 1987 makes it a criminal offence for a ‘Landlord’ (freeholder) to dispose of the freehold to certain types of residential property without first offering it to the ‘Tenants’ (leaseholders) under the 1987 Act’s so-called ‘Right of First Refusal’.
A Section 5A Offer Notice sets out a fixed price at which the freeholder is prepared to sell the freehold. It also sets out the key terms of the proposed sale. The offer remains open for acceptance by the leaseholders for a period of two months from the date on which it is made.
The leaseholders must accept this offer in order to preserve the right to buy the freehold In order to accept, the leaseholders must serve a formal Acceptance Notice under Section 6 of the 1987 Act during the offer’s open period. A ‘qualifying majority’ (i.e. more than 50% of the flats in the building) is needed to qualify for acceptance and enable them to serve the Acceptance Notice.
If the offer to sell is not accepted by the leaseholders, the freeholder is then free to sell the freehold to whomever they choose for a defined period, but not at a price lower than that set out in the Offer Notice.
Often, if a fixed price Section 5A offer notice is served, this is because a deal has been agreed with a third -party buyer. Therefore, if you are a flat owner and receive one of these notices (with a fixed price) then this is likely to mean that the freeholder wants to sell and has a buyer lined up. If you and others in your building wish to consider accepting this, then prompt action is needed as a majority (more than half) of the flat owners need to accept in two months, a time frame that can pass very quickly when you need to contact overseas and remote owners.
A Section 5B offer notice means that the property is going to auction. There are various hoops to jump through but if a majority act promptly and serve the relevant notices (acceptance, nomination and an election notice) then the flat owners will have the same rights as any successful bidder at auction. This means completing the purchase in 28 days, which can be no mean feat if there are a large number of flats.
Whilst each case is fact specific, a Section 5 disposal (auction or fixed price) represents a good opportunity to buy your freehold and will generally be much quicker (and usually cheaper) than using other enfranchisement rights under the Leasehold Reform Housing and Urban Development Act 1993. It also goes without saying that in larger cases, having a team that is experienced in dealing with the issues that arise in this sort of project is key to success.
There are other points to consider such as how the contributions will be structured and how the cost of those not taking part will be dealt with, along with tax issues and the corporate structure of the holding company used to buy the freehold.
Our Corporate and Landlord & Tenant team is well versed in working together to help participants achieve what is needed in a short space of time.
Call us today on 0207 631 4141 or email us on leasehold@bishopandsewell.co.uk and one of our experts will be able to advise your best course of action going forward.
