The Right of First Refusal – The Landlord and Tenant Act 1987 – What’s in it for you ?
If a landlord is proposing to sell its interest in a building which contains flats to which the right of first refusal applies, the landlord is required by law to first offer its interest to the tenants before offering it on the open market. Broadly speaking, the right of first refusal prevents a landlord from disposing of property which is covered by the Landlord and Tenant Act 1987 (“the Act”) unless it has complied with certain requirements. The property has to be covered by the act at the time of the proposed disposal.
It should be noted that the right of first refusal does not entitle tenants to force their landlord to sell their interest in a property. The right only applies once the landlord has decided to sell its interest.
The requirements are:
- That the landlord has served an offer notice on the qualifying tenants; and
- That the disposal of the property is carried out in accordance with the requirements of the Act.
When does the Act apply ?
In order for the Act to apply the following questions must be satisfied:
Does the property qualify ?
- The property must contain two or more flats that are held by qualifying tenants (for guidance on what a qualifying tenant is, see question 2 below).
- More than 50% of the total number of flats in the property must be held by qualifying tenants.
- If the property is partly residential and partly commercial, the internal floor area of the residential part must be 50% or more of the total internal floor area. Any common parts are not included in any calculation
Are you a qualifying tenant ?
A qualifying tenant is any tenant unless you fall within one of the exceptions. These exceptions include:
- Tenants under assured shorthold tenancies;
- Tenants under a business tenancy to which Part II of the Landlord and tenant Act 1954 applies;
- Tenants under protected shorthold tenancies;
- Tenants whose tenancies end on the termination of their employment;
- Tenants who are tenants of 3 or more flats in the property.
Is your Landlord exempt ?
Resident landlords are exempt from the provisions of the Act. Other exempt Landlords include registered housing associations; local authorities; police authorities; development corporations and various public bodies.
Is the disposing landlord your immediate landlord ?
The right of first refusal only applies when your immediate landlord decides to sell its interest in the property. This means that it only applies where the landlord to whom you pay rent is intending to sell.
For example: Mr Smith rents a flat from his landlord Mr Jones. Mr Jones has a leasehold interest in the flat which was granted to him by the freeholder Mr Brown.
If Mr Brown decides to sell his interest in the property, Mr Smith and the other qualifying tenants would not be able to exercise a right of first refusal as Mr Brown is not Mr Smith’s immediate landlord. Mr Brown would therefore be free to dispose of his freehold interest without offering it to the flat owners.
If the right of first refusal applies, before making a disposal the landlord must serve a notice under section 5 of the Act. The notice must be served when a landlord “proposes” to dispose of its interest in the property.
If a landlord fails to comply with its obligations under the Act without reasonable excuse, then he will be guilty of a criminal offence and can be liable to pay a fine. From the commencement of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, the level of the fine will be unlimited.
From service of the landlord’s notice, the tenants will have a minimum period of 2 months to accept the offer by serving a section 6 acceptance notice. If the qualifying tenants fail to accept the offer before the deadline stated in the notice, their right to first refusal will be lost.
The right of first refusal may be a useful right for many tenants. It is also of great importance that landlords ensure that they comply with their obligations under the Act, given that failure to do so can result in a criminal record and a significant fine.
The requirements of the legislation are complex and the deadlines are strict. We would of course be happy to assist you if you are a landlord or a tenant and you require advice on the applicability and implications of the Act. Please feel free to contact us if you require further information.
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