HomeLeasehold & Freehold ServicesUnderstanding & acting on the right of first refusal

Right of first refusal

Understanding & acting on the right of first refusal

If you’re a leaseholder and have received a Section 5 Notice from your landlord, your next steps are crucial. This notice means your landlord is planning to sell the freehold or head lease of your building. The right of first refusal, protected under the Landlord and Tenant Act 1987, gives you and your neighbours the legal opportunity to purchase this interest before it’s sold to an outside party.

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Key benefits of acting on the right of first refusal

When leaseholders receive a Section 5 Notice, taking action on the right of first refusal can lead to significant advantages. Here’s why this process is vital:

Collective control over the property

Exercising the right of first refusal empowers leaseholders to take collective ownership of the property’s management. This means:

  • Decision-making power: Leaseholders gain control over crucial decisions that affect their living environment, including maintenance, repairs, and enhancements. This eliminates reliance on external landlords who may prioritise profit over residents’ well-being.
  • Customisation of property policies: By owning the freehold collectively, leaseholders can set policies that align with their needs, promoting a harmonious and well-maintained living space.

Financial advantages

Acquiring the freehold can provide several financial benefits:

  • Control over service charges: Leaseholders can manage and allocate service charges transparently, ensuring that funds are used appropriately for the building’s upkeep.
  • Ground rent savings: Owning the freehold eliminates or reduces ground rent obligations, leading to potential long-term savings.
  • Lease length management: Collective ownership allows leaseholders to extend their lease terms at minimal or no cost, enhancing property value and avoiding costly lease extension fees.
  • Increased property value: A share in the freehold often makes individual flats more attractive to buyers, boosting their marketability and overall value.

Protection against unfavourable sales

The right of first refusal acts as a safeguard:

  • Preventing Sales to third-party landlords: This protection ensures that the freehold isn’t sold to third-party landlords who may prioritise profit through aggressive service charge policies.
  • Maintaining community stability: When leaseholders collectively own the freehold, they can protect their homes from being managed by landlords with conflicting interests, fostering a more stable and cooperative community.

These benefits make the Right of first refusal a powerful tool for leaseholders seeking to protect their investment, enhance their living conditions, and maintain financial control.

Process of exercising the right of first refusal

Understanding the steps involved in the right of first refusal process is essential for leaseholders who receive a Section 5 Notice. Here’s an overview to help guide you through this crucial period:

Step 1: Receipt of the section 5 notice

  • Initial notification: The landlord serves a Section 5 Notice, formally indicating their intention to sell the freehold or head lease of the property. This notice outlines the terms of the proposed sale, including the price and conditions.
  • Start of the response period: Once this notice is received, the clock starts ticking. Leaseholders must act swiftly to meet strict deadlines.

Step 2: Leaseholder decision-making

  • Collective agreement: For the right of first refusal to be exercised, more than 50% of the qualifying leaseholders in the building must agree to participate.
  • Initial discussions: Leaseholders should promptly communicate and assess interest in purchasing the freehold. It’s beneficial to form a collective group or committee to coordinate this process.

Step 3: Legal & financial preparation

  • Seek expert advice: Engaging a solicitor experienced in leasehold law is crucial to navigate the complexities of the Landlord and Tenant Act 1987. At Anthony Gold Solicitors, we provide tailored guidance, budgeting estimates, and legal expertise to support this process.
  • Financial arrangements: Ensure that the participating leaseholders are prepared to meet the financial obligations involved in purchasing the freehold, either through pooled resources or financing options.

Step 4: Formal response to the Section 5 Notice

  • Notice of acceptance: Leaseholders must respond formally within the specified time frame (usually two months) to confirm their intention to proceed.
  • Nomination of a purchaser: The collective group nominates an entity (e.g., a leaseholder-owned company) that will act as the buyer on behalf of all participating leaseholders.

Step 5: Completion of the purchase

  • Due diligence & contracts: Once the landlord accepts the notice of acceptance, due diligence is carried out, and the terms of sale are finalised. Legal agreements are then signed.
  • Transfer of ownership: The completion process concludes with the transfer of the freehold to the leaseholders’ nominated entity, formalising their new ownership status.

Why timing Is critical

Strict time limits apply to each stage of this process, and failure to respond promptly can result in the loss of the right of first refusal. Acting quickly ensures that the opportunity is not missed, safeguarding the interests of all participating leaseholders.

Words from our clients

Megan McPhee. Without wanting to get soppy about it, she was an angel in human form. She always responded very promptly, fully and with thoughtful accuracy. She thus made a horrible stressful lease extension and concurrent loan repayment much, much easier.

Our Client

Price was really competitive, service from the leasehold dept was fantastic. Answered all my questions, kept my informed and got the result that I wanted.

Ann McIlwraith

I have worked with Ian Mitchell on leasehold and freehold disputes. Ian is a pleasure to work with and his expertise in the landlord and tenant law was exactly what I needed. He is a credit to this firm.

Our Client

Why choose Anthony Gold Solicitors?

Navigating the right of first refusal process can be daunting, and having the right legal team by your side makes all the difference. Here’s why Anthony Gold Solicitors stands out in supporting leaseholders through this important journey:

1. Extensive expertise in leasehold law

Anthony Gold Solicitors has a proven track record of assisting leaseholders with their rights under the Landlord & Tenant Act 1987. Our deep knowledge and experience with complex leasehold cases mean you get expert advice tailored to your situation.

2. Comprehensive support every step of the way

We provide end-to-end support, ensuring that you are guided through every stage of the process:

  • Initial consultation & guidance: We offer a complimentary next-step guide to help you understand the implications of your Section 5 Notice and whether pursuing the right of first refusal is beneficial for you and your neighbours.
  • Strategic planning & budgeting: Our team will develop a clear matter budget so you can anticipate and plan for financial commitments upfront.
  • Coordination with leaseholders: We facilitate collective action by helping leaseholders organise and communicate, ensuring that more than 50% of participants are aligned to proceed.

3. Personalised, client-centred approach

We understand that every building and group of leaseholders is unique. Our approach is tailored to fit the specific needs of your property and community. We take the time to explain your options, answer questions, and provide practical, clear advice, empowering you to make informed decisions.

4. Proven success & client trust

Our firm has successfully represented numerous leaseholders in right of first refusal cases, helping them gain control over their properties and avoid third-party takeovers. We are known for our reliability, responsiveness, and ability to navigate intricate legal and procedural requirements effectively.

5. Transparent & approachable service

From the initial consultation to the final purchase completion, we maintain transparency about timelines, processes, and costs. We’re always on hand to answer your questions and offer the reassurance you need to move forward confidently.

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Right of first refusal: FAQs

  • Who qualifies for the Right of First Refusal?

  • What is a Section 5 Notice and why have I received one?

  • How long do leaseholders have to respond to a Section 5 Notice?

  • What happens if leaseholders don’t respond to the Section 5 Notice in time?

  • Can an individual leaseholder act on the Right of First Refusal alone?

Who qualifies for the Right of First Refusal?

The Right of First Refusal applies to qualifying leaseholders of residential properties. To qualify, the building must contain two or more flats, and more than 50% of the flats must be held by leaseholders. Additionally, the premises should not be primarily commercial, meaning that non-residential use should not exceed 50% of the building’s total space. Certain exclusions apply, such as if the landlord is a local authority or housing association.

What is a Section 5 Notice and why have I received one?

A Section 5 Notice is a formal notification that a landlord must serve to qualifying leaseholders when they intend to sell the freehold or head lease of a building. This notice outlines the terms and conditions of the proposed sale and serves as an offer for leaseholders to purchase the interest before it is sold to a third party. Receiving this notice indicates that the landlord is complying with the requirements under the Landlord and Tenant Act 1987.

How long do leaseholders have to respond to a Section 5 Notice?

Leaseholders typically have two months to respond to a Section 5 Notice to express their intent to proceed with the purchase of the freehold. This response period is strict, and it begins from the date the notice is served. Leaseholders must ensure timely coordination and formal acceptance of the offer within this period to preserve their right of first refusal.

What happens if leaseholders don’t respond to the Section 5 Notice in time?

If leaseholders do not respond within the two-month period outlined in the Section 5 Notice, they forfeit their right of first refusal. This means the landlord is free to proceed with selling the freehold or head lease to a third-party buyer. Missing the response deadline effectively removes the leaseholders’ priority in the transaction, potentially impacting their control and interests within the building.

Can an individual leaseholder act on the Right of First Refusal alone?

No, an individual leaseholder cannot exercise the right of first refusal alone. For the process to move forward, more than 50% of the qualifying leaseholders in the building must agree to collectively act. This collective approach is necessary to meet the legal requirements and demonstrate that there is sufficient leaseholder interest in acquiring the freehold or head lease under the Landlord and Tenant Act 1987.

Who qualifies for the Right of First Refusal?

The Right of First Refusal applies to qualifying leaseholders of residential properties. To qualify, the building must contain two or more flats, and more than 50% of the flats must be held by leaseholders. Additionally, the premises should not be primarily commercial, meaning that non-residential use should not exceed 50% of the building’s total space. Certain exclusions apply, such as if the landlord is a local authority or housing association.

What is a Section 5 Notice and why have I received one?

A Section 5 Notice is a formal notification that a landlord must serve to qualifying leaseholders when they intend to sell the freehold or head lease of a building. This notice outlines the terms and conditions of the proposed sale and serves as an offer for leaseholders to purchase the interest before it is sold to a third party. Receiving this notice indicates that the landlord is complying with the requirements under the Landlord and Tenant Act 1987.

How long do leaseholders have to respond to a Section 5 Notice?

Leaseholders typically have two months to respond to a Section 5 Notice to express their intent to proceed with the purchase of the freehold. This response period is strict, and it begins from the date the notice is served. Leaseholders must ensure timely coordination and formal acceptance of the offer within this period to preserve their right of first refusal.

What happens if leaseholders don’t respond to the Section 5 Notice in time?

If leaseholders do not respond within the two-month period outlined in the Section 5 Notice, they forfeit their right of first refusal. This means the landlord is free to proceed with selling the freehold or head lease to a third-party buyer. Missing the response deadline effectively removes the leaseholders’ priority in the transaction, potentially impacting their control and interests within the building.

Can an individual leaseholder act on the Right of First Refusal alone?

No, an individual leaseholder cannot exercise the right of first refusal alone. For the process to move forward, more than 50% of the qualifying leaseholders in the building must agree to collectively act. This collective approach is necessary to meet the legal requirements and demonstrate that there is sufficient leaseholder interest in acquiring the freehold or head lease under the Landlord and Tenant Act 1987.

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