The Right of First Refusal provides qualifying tenants (leaseholders) with an opportunity to purchase the freehold of the building in which their flat resides.
Dictated by Part 1 of the Landlord and Tenant Act 1987, freeholders must serve qualifying tenants with formal Section 5 notices, to offer the Right of First Refusal.
The property, tenants and landlord must meet a range of strict qualification criteria in order for the Right of First Refusal to apply to the sale of the freehold.
As a legal requirement, freeholders must ensure that they follow the Right of First Refusal’s strict processes and timelines which are set-out by law.
If a freeholder fails to comply or does not do so correctly, they can face legal action which can include a hefty fine, prosecution and a criminal conviction. Furthermore, leaseholders can compel a resale of the freehold, should a sale have taken place.
Even the smallest mistake can render these notices invalid, which could have severe consequences and of course, delay the sale of your freehold.
Mr Cooke wanted to sell his freehold quickly in order to raise some much-needed capital. As such, he wanted to keep the costs involved with the sale to a minimum, which included the service of the Section 5 Right of First Refusal Notices. Mr Cooke assumed that the only assistance he could employ for these legal documents would be from solicitors. However, after carrying out research, he discovered that it would be too costly to appoint a solicitor to prepare and serve the notices on his behalf.
As a result, Mr Cooke decided to take matters into his own hands and prepare the Right of First Refusal Notices for a private sale by himself. Unfortunately, the Notices were later rejected by Mr Cooke’s savvy leaseholders because he had failed to include essential pieces of information, which rendered the Notices invalid. This therefore meant an unwelcome delay in the sale of Mr Cooke’s freehold.
While Mr Cooke did not want the additional outlay, he realised that he needed professional assistance to ensure that the Section 5 Notices were served correctly on the second attempt. Fortunately, Mr Cooke discovered Freehold Sale’s Right of First Refusal Notice service and contacted us immediately.
We advised Mr Cooke that we could prepare and re-issue the Section 5A Notices at no additional cost to him. Furthermore, we would be able to provide this service on the same day that he contacted us. However, Mr Cooke would have to provide his leaseholders with a further two months to accept the offer as is required by the Section 5A Notice procedure.
Mr Cooke’s leaseholders chose to decline their Right of First Refusal offer, which enabled Freehold Sale to proceed with the purchase of Mr Cooke’s freehold interest. Although the sale was delayed initially, our fast and efficient service ensured that the sale went through quickly for Mr Cooke.
Mrs Shah wanted to sell freehold ground rents to a 5 unit converted building for which her late husband was the freeholder. Her solicitor advised that if she wanted to sell to a private freehold buyer, Mrs Shah would first need to serve Section 5A Notices to offer the leaseholders the Right of First Refusal. And in order for this to proceed, Mrs Shah would be required to employ a surveyor in order to determine a sale price for the freehold.
Unfortunately, Mrs Shah’s freehold interest was valued extremely highly by the surveyor, and it was the surveyor’s price that was offered in the notice. This meant that following service of the Section 5A Notices, not only did the leaseholders not accept their Right of First Refusal offer but Mrs Shah couldn’t find any private freehold buyers to accept the sale offer either. As a result, Mrs Shah thought that she would be stuck with owning and managing the freehold ground rents.
When Mrs Shah contacted Freehold Sale, we explained that we would be unable to accept the offer to purchase the freehold ground rents, as the sale price was much too high. However, we advised that the Section 5A Notice could be withdrawn and new Section 5A or 5B Notices issued straight away. The Section 5B Notice would enable Mrs Shah to place the freehold into an auction, in which the sale price would be determined by the highest bid amount.
For a low-cost fee, our team wrote to Mrs Shah’s leaseholders to inform them that the Section 5A Notice had been withdrawn. We also prepared the Section 5B Notices on Mrs Shah’s behalf and served these to the leaseholders. On the run up to the date of the auction (four months after the Section 5B Notices had been served), as part of our Section 5B Right of First refusal service, we provided the auctioneers with all of the relevant information about the freehold that they required on Mrs Shah’s behalf.
There are five different forms of notice under Section 5. These are based on the various ways a freehold property can be sold:
The Right of First Refusal only needs to be offered when the freehold property and the leaseholders (tenants) qualify. The following qualification criteria must be met:
Property qualification criteria
Leaseholder qualification criteria
Calculating the value of a freehold interest can be a difficult task, with so many influential factors to consider. In fact, it is not unusual for people to miscalculate or even undervalue a freehold interest because they have overlooked a crucial detail. To ensure that you’re getting the right price for your freehold, contact Freehold Sale for an expert appraisal. Our team specialise in determining the price that freeholds are likely to achieve on the open market and will also help you to understand the strength of your investment.