Tag Archives: Info for leaseholders

My landlord has changed – shouldn’t I have had the right to buy the freehold?

Not necessarily. There are quite a few types of transfer that are exempt from the 1987 Act (where a freeholder must offer the ‘right of first refusal’ to the leaseholders).

There are several situations that do not trigger the 1987 Act ((the right of first refusal to purchase the freehold (or qualifying head lease or other relevant interest) under the Landlord and Tenant Act 1987)), a point that is not always well understood.

Certain types of transfers e.g. transfers between family members or transfers between related/ group companies do not trigger the first refusal mechanism under the 1987 Act.

Therefore if your landlord has changed this does not automatically mean that the provisions of the 1987 Act have been breached.

Often landlords will write informing of any change of ownership and specifying the applicable exemption. After all they must legally give you notice of the address and name of the landlord under sections 47 and 48 of the 1987 Act. It is also a requirement that any change of landlord is notified.

In certain situations where there may be some debate about whether the 1987 Act applied or where the landlord (perhaps as purchaser) feels that there is a need to give ‘clearance’ for the change of ownership notice may be given telling the flat owners of the change and alerting them to their 1987 Act rights.

If you receive notification in this sort of situation and want to pursue the freehold you should consider taking advice promptly from an appropriately qualified advisor because of the relevant time limits.

 

I have been offered the freehold by the landlord serving me with an ‘offer notice’ – what does this mean?

There are two main types of offer notice relating to proposed sales of the freehold to a building under the 1987 Act.

Under the 1987 Act the landlord must (provided that the disposal is one to which the Act applies) offer the residents of the building the chance to purchase the freehold under the so-called ‘right of first refusal’ under that Act.

If the landlord does not do this he may well commit a criminal offence and there may be other avenues of redress – such as the chance to purchase the freehold on similar terms to the proposed transaction.

What does the fact that I have been served with an ‘Offer Notice’ mean?

Strangely enough, your landlord wants to sell the freehold to your building. It may be that there is a potential buyer lined up or that he is proposing to sell at auction or simply that because he wants to sell and because the legislation applies and a notice has been served to see whether the flat owners will ‘bite’ and purchase the freehold.

There are 2 main types of notice encountered in practice: – Section 5A and Section 5B. These are mentioned briefly below:

Section 5A

This is a ‘fixed price’ ‘take it or leave it’ offer. You cannot challenge the price in the notice. If you do want to purchase, but not at that the stated price consider the 1993 Act as an alternative.

The offer notice should state the key terms of the disposal and will stipulate a date – at least 2 months away – by which the qualifying tenants (basically long leaseholders but other tenancies also qualify for 1987 Act rights, so if in any doubt check) must serve an acceptance notice.

More than 50% (a majority) of the qualifying tenants are needed to serve the acceptance notice.

There are then other steps that must be taken (serving a nomination notice within a further 2 months and proceeding to exchange contracts within 2 months of receipt of the contract following nomination). You will need professional help to serve the relevant notices and proceed with the purchase.

You should also consider as a preliminary step getting some valuation advice to work out whether the proposed price is reasonable or not.

Section 5B

A section 5B notice tells you that the freehold is going to be sold at action. The notice will either state the date of the auction, or (provided that he complies with the relevant time limits) the landlord can serve a further notice closer to the auction date notifying you of the date and time of the auction.

Provided that the correct notices are served the flat owners will achieve a ‘right of first refusal’ against any successful bidder at the auction. They will then have 28 days to complete the contract in the same way that any eventual buyer would following an auction purchase.

Once again this is a collective right that must be exercised by a majority (more than 50%) of the qualifying tenants.

In the case of a 5B notice acceptance and nomination notices must also be served together with notice of election. Likewise you will need professional help to achieve success in purchasing the freehold under this route.

Once again valuation advice early on is recommended as is considering carefully the tactics as to whether to attend the auction or to attempt to make a bid before the sale takes place.

If I want to accept one of these notices, what should I do?

As mentioned above, these are collective rights open to a majority and so you will need more than 50% of the qualifying flat owners. The rules on what makes a qualifying building and identifying a qualifying tenant can be complex in certain cases and advice may be required.

Secondly, assuming that there are sufficient flat owners to proceed, they need to consider funding / valuation – i.e. is the process affordable and is the price that is proposed reasonable? In the case of an auction sale, a sense of the likely sale price will also be essential to work out not only whether the price is right but also whether there will sufficient participating flat owners with funds to complete in the relatively short time frame if the purchase proceeds.

Thirdly, if no acceptance notice is served and the freehold is not sold to someone else there is nothing to stop one or more of the flat owners buying the freehold provided that the relevant offer period has expired without acceptance, or if the process has been started but then abandoned by the majority.

 

I want to develop the roof space – how might this impact on our plans to buy the freehold?

This can be a potential problem. Firstly you should check that you do not own the area already. A qualified person will need to read your lease and advise on this.

Once you have established who owns the area, the position needs to be considered with your fellow participants. If you are the only person with access to this area, then provided the other people purchasing the freehold with you agree, it should be possible to obtain rights over this area and also permission from the freeholder so that you can develop this area.

Please bear in mind the following:

1. If the roof space does not already belong to you then you will need to buy it from the eventual purchaser of the freehold.

Sometimes this issue can be resolved by allocating the part of the purchase price relating to the roof area to you – in effect increasing your share of the freehold purchase cost.

If you go down this route you may need a specialist valuer or surveyor to provide an opinion on the price to be paid.

2. Owning the area means being granted a lease of the roof area. The company / nominee purchaser will have to agree to do this.

3. Under the terms of the lease the consent of the freeholder may still be required (and most likely will be) before any work can be carried out.

4. There may well be other applicable restrictions outside the lease or the title that must also be overcome before any work can commence. e.g. planning permission or building regulations consent. If the property is listed or in a conservation area further constraints may apply.

5. If it is your intention to do this after the freehold purchase completes it is as well to sound out the views of your likely co-directors in the freehold owning company in advance. If there is going to be disagreement then there is the potential for a ‘conflict of interest’ to arise and the same legal advisor may not be able to act for all of you.

 

Do we have to admit a non-participant to a freehold purchase transaction?

The short answer is ‘no.’

Once the freehold purchase process has started under the 1993 Act (the Leasehold Reform Housing and Urban Development Act 1993 [as amended]) there is no statutory provision whatsoever requiring those participating to admit any other flat owner in the building to their number.

Similarly, under the 1987 Act (the Landlord and Tenant Act 1987), once the acceptance notice has been served there is no requirement for the qualifying majority to admit any newcomers.

In practice newcomers are often welcome, as they may assist in sharing the overall cost of the process but there is no requirement as the law currently stands to admit anyone who was not part of the original process.

Therefore if the freehold to your building is being offered to you – or you are considering taking control of the process by serving Notice on your landlord, you should consider this point (among other factors) when deciding whether to join in or not.