Rights of First Refusal

Many people live in blocks of flats and buildings that have been converted into apartments. The usual method to deal with these multiple title interests is that the freehold is owned by a landlord and the “owners” of flats or apartments hold a long lease (typically granted for a minimum initial period of 99 years) and this is normally granted at a ground rent. Very commonly this structure will apply to new build flats on residential developments and also conversion of former industrial or office buildings into flats in urban environments.

Commonly once the final flat or apartment has been sold, the property developer will then wish to sell the freehold of the block of flats or apartments as they look to tie up loose ends for the development. Ground rent investments as such freeholds are known to have proven to be a growth area for investment.

In order to protect the “owners” of the flats and apartments the Landlord and Tenant Act 1987 requires that if a Landlord proposes to sell the freehold to a qualifying block of flats they must first offer to sell the freehold to the “owners” of the flats/apartments on the same terms. The legislation involved is widely regarded to be a particularly confusing piece of drafting with multiple tests in respect of qualification of buildings and persons and with complicated timescales as well.

If you are a flat or apartment owner and you have received a notice from your landlord (known as a Section 5 Notice) offering you the chance to purchase the freehold of your block, it is important to be properly advised throughout the process should you and a majority of your fellow owners wish to take the opportunity to purchase. Alternatively if you are a Landlord and you are thinking of selling a freehold such as is described above it is essential for you to obtain proper advice before you commit to selling your property. If a Landlord fails to comply with the 1987 legislation and offer first refusal to their Tenants then this failure is a criminal rather than civil offence and carries potentially severe penalties.

If you require help or advice in respect of any residential lease matters please do not hesitate to contact our expert property team who would be only too happy to assist.

James Dunn