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Disposals by landlords and the right of first refusal

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By Adrian Price

Any landlord who seeks to dispose of their property interest in mixed use or residential blocks must first consider whether they need to serve a section 5 notice on the leaseholders. This is because the Landlord and Tenant Act 1987 (the ‘Act’) grants certain leaseholders a right of first refusal (‘RFR’) over certain disposals by the landlord. The effect of the Act is that the landlord must offer the tenants the opportunity to purchase the interest before there is a disposal; it can be marketed, but not sold. As the Act creates criminal offences, it is vital that appropriate advice is taken by a landlord at an early stage. 

There are very limited transactions which will not trigger the RFR. Not only may it apply to a simple transfer by the freehold owner but it may arise on the grant of a headlease or a new interest in the building. It can also arise on a surrender of a headlease. 

The area of law is fraught with complexities. First of all, there are 5 different forms of notice which could be served dependent on the type of disposal taking place. The notice itself must be served on a requisite number of qualifying tenants, including any Right to Manage Company, and must set out certain information such as the terms of the offer, information about the disposal and the timeframe in which the tenants should respond. If the requisite number of tenants accept the offer yet fail to engage in the process further, a landlord could be waiting for up to 4 months before they sell on the open market. Therefore, consideration must be given to timings where a landlord is seeking a quick sale. 

Careful consideration must be given to the relevance of the Act whenever a landlord intends to dispose of their interest, and our Collective Enfranchisement and Commercial Property team are well versed in the intricacies of the Act and will be pleased to assist.

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