The Right of First Refusal provides leaseholders with an opportunity to purchase the freehold of the building in which their flat resides, before it is sold to another party by the freeholder. This is a legal obligation dictated by Part 1 of the Landlord and Tenant Act 1987.
The 1987 Act, prescribes that in order to offer the Right of First Refusal, the freeholder must issue qualifying leaseholders with a formal Section 5 Notice. This is a document that both informs leaseholders of the freeholders intention to sell the freehold interest and provides them with the opportunity to buy that interest before it is offered on the open market.
There are five different forms of notice under Section 5. These are based on the various ways a freehold property can be sold:
The most common of these are the Section 5A and Section 5B Notices, which Freehold Sale can prepare and serve on behalf of freeholders.
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:
Landlords can be exempt from offering the Right of First Refusal if they are a resident landlord in which the property is their only principal residence and has been for more than 12 months. Registered housing associations and local authorities can also be exempt.
Right of First Refusal time limits vary depending on the particular notice that is being served i.e. Section 5A, B, C, D or E. However, the most common notices are Section 5A for a private sale and Section 5B for a sale by public auction.
Section 5A Notices are the most straightforward, providing qualifying leaseholders with two months to accept the Right of First Refusal offer. The notice is deemed to be served two days after posting. Once two months and two days have passed since the Section 5 Notice was posted, you are able to dispose of the freehold on the same terms as offered in the notice. However, if the leaseholders accept the ROFR, they will have a further two months to nominate a purchaser.
Section 5B Notices on the other hand, must be served four to six months before the date of the auction. This provides leaseholders with the opportunity to purchase the freehold at the price reached at auction before the highest bidder.
The Section 5B Notice process is more complex than Section 5A, so we’ve put together a simple guide for auctioning freehold ground rents.
It is a criminal offence to sell a freehold without first offering the Right of First Refusal to the qualifying tenants (leaseholders), as it is a breach of the obligations set by the Landlord and Tenant Act. Not providing the proper notice to leaseholders can result in criminal conviction and a fine of up to £5,000.
Following the disposal of a freehold, leaseholders have the right to demand information relating to the sale within a specified timeframe, to verify that Right of First Refusal obligations were fulfilled. If it was discovered that the Section 5 offer notice was not posted correctly, contained incorrect details, or if the drafting did not meet the prescribed format, it may invalidate the notice which would be considered an illegal transfer. Leaseholders then have the option of forcing the new landlord to sell the freehold to them at that price.
To learn more about the Right of First Refusal, download our comprehensive Right of First Refusal Guide. It’s been prepared by experts at Freehold Sale and written in plain English, so it’s easy to understand
Selling a freehold property and serving Section 5 Notices to leaseholders can be costly, stressful and time consuming, which is why we offer a hassle-free solution that will also help you save money. We have extensive experience in preparing and serving Section 5A and 5B Notices on behalf of our clients. So, whether you’re selling your freehold privately (Section 5A) or at auction (Section 5B), we can assist you in complying with your legal obligation to offer the Right of First Refusal to qualifying tenants (leaseholders) in your building.
Our Right of First Refusal Notice service is fast and efficient. In most cases, we can prepare and serve Section 5 Notices within 24-hours, subject to having access to the leases and title information. When serving notice, we retain all postage receipts for your file along with all related documentation, so you can rest assured that you have met your legal obligations.
We offer the following as part of our service:
To start the Section 5A or Section 5B Notice procedure to offer leaseholders the Right of First Refusal, or to learn more about our service, complete the contact form and one of our advisors will be in touch to discuss how we can assist you. When you sell your freehold ground rents to us, we’ll always offer to serve the Section 5A Notices on your behalf for no additional cost.
Our Right of First Refusal Service is hassle-free and delivered by experts with decades of experience.
Call us on 01245 227 920 or apply online today and we’ll contact you at the earliest opportunity.
Mr Cooke – North East
Problem – Incorrect service of Section 5A Notices
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.
Solution – Re-issuing of Section 5A Notices at no cost
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.
Result – Freehold Sale purchased the freehold
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 – North Wales
Problem – Unable to find a buyer following a high sale price
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.
Solution – Freehold Sale provided a Section 5B Notice service
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.
Result – The freehold was sold to a private buyer via auction
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.
How do leaseholders qualify for the Right of First Refusal?
Leaseholders qualify for the Right of First Refusal so long as they do not own more than three flats in your building. This includes most fixed or periodic tenancies but excludes business and agricultural tenancies.
How long do leaseholders have to accept the Right of First Refusal offer?
Leaseholders have two months to accept the landlord’s Right of First Refusal offer. However, this can be four months when selling your freehold through an auction house. Learn more about selling your freehold here.
Can leaseholders negotiate the offer in the Right of First Refusal Notice?
The landlord’s offer is served on a ‘take-it or leave-it’ basis and is not negotiable. The disposal would be deemed illegal should the landlord sell for a lower price than that stated in the offer notice.
How do I prepare Section 5 Notices for leaseholders?
This is a legal document and it is therefore advisable to seek the assistance of an industry professional or qualified solicitor to prepare and serve Section 5 Notices. It is important to issue the notice correctly in order to avoid an illegal disposal which could result in the disposal being challenged by the leaseholders.
Do I need a solicitor to issue Section 5 Notices to my leaseholders?
No, you do not need a solicitor to prepare and serve Section 5 Notices. We can provide this service on your behalf and in most circumstances we can do this at no cost to you. Learn more about our Section 5 Notice Service.
Are there any exemptions for the Right of First Refusal?
If your freehold property has been your only principal residence for the last 12 months, you will be exempt from offering the Right of First Refusal. Find out more here.
What is a qualifying tenant for the Right of First Refusal?
A qualifying tenant includes leaseholders and most fixed or periodic tenancies excluding shorthold or assured tenancies. A qualifying tenant is restricted to owning no more than 2 flats in the building.
What is a Section 5 Notice ?
A Section 5 Notice is a document that is provided to qualifying leaseholders when selling a freehold property. It both informs the tenants of your intention to sell and offers them the Right of First Refusal to purchase the freehold collectively. Learn more about the Section 5 Notice here.
What is the Right of First Refusal?
The Right of First Refusal gives leaseholders in a freehold property the opportunity to collectively purchase the freehold to the building in which they own a flat/apartment. The Right of First Refusal is provided by Part 1 of the Landlord and Tenant Act 1987. Leaseholders are offered the Right of First Refusal by way of a Section 5 Notice.
How much does your Right of First Refusal Service cost?
Our Right of First Refusal service is free when you sell your freehold interest to us. However, in most cases we can also provide this service for free when a freeholder is selling to a third party. If it is not possible to provide this service for free, we will charge a low, fixed cost. Find out more.
How quickly can you serve Section 5 notices to my tenants?
We can usually prepare and servce Section 5 Notices to your tenants within 24-hours, subject to having access to the leases and title information. For freeholds comprising of a large number of leases we may need more time to facilitate this service. Learn more about our Section 5 Notice service.
Am I required to offer the Right of First Refusal?
You will need to offer the Right of First Refusal if your freehold property contains at least two flats, more than 50% of the flats are held by qualifying tenants and no more than 50% of the property is in non-residential use. Resident landlords are exempt. Learn more about the Right of First Refusal here.
Calculating the value of a freehold property 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’s 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 valuing freehold properties and will help you to understand the strength of your investment.
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