Tag Archives: section 5b

Section 5B of the Landlord and Tenant Act 1987 – a land of opportunity?

I hosted a talk by Gary Murphy of auctioneers ALLSOP at the recent ALEP conference on 10th October 2016.

The topics that  we were discussing was whether the fact that the tenants have served an acceptance and nomination notice under the provisions of the Landlord and Tenant Act 1987 has an impact on the to price achieved at auction. This being in a situation where the landlord has served a notice indicating a that the property will go to auction in accordance with Section 5B of the Landlord and Tenant Act 1987.

Perhaps unsurprisingly, the results of Gary’s anecdotal poll of auction clients reveals that large number will not bid in such a situation leading to slightly depressed prices in the room.
Gary has written an article that has now appeared in the Estates Gazette (see scan below).

This caused me to wonder on two counts. Firstly, is not worth bidding on such lots as a buyer? After all, if the tenants do not proceed then you would be buying at a discount and, secondly, as tenant isn’t this a golden opportunity – after all, is if the property is sold then chances are you will be buying slightly below market value.

There are a number of Barriers to the tenants succeeding in practice – firstly, they may need to be very organized (ready to complete in 28 days) and if there are lots of flats this may be hard / impossible to achieve. Also it can be hard to motivate people when the valuation outcomes are uncertain (remember no-one has put a number on the proposed price – unlike a under section 5A of the Landlord and Tenant Act 1987) – However, in the right circumstances auction disposals following a notice under Section 5B of the Landlord and Tenant Act 1987 present a significant opportunity.

 

Landlord’s Offer Notices Under Section 5B of the Landlord and Tenant Act 1987

I recently wrote about this issue in an article that appeared in Landlord and Buy to Let Magazine, see:

http://www.joomag.com/magazine/landlord-buy-to-let-magazine/0540853001421676588?short

However, Section 5B is an issue that is worth considering, as this means that the freehold in your building will go to auction. You may (collectively) have the right of ‘first refusal’ against any successful bidder.

So, should you do anything about this?

The answer is, it depends. If the price is right then this may well be an ideal opportunity to buy out the freehold to your building, but to know this you may need valuation advice.

Secondly, the price will not be set until the auction and therefore, you may well need to attend to watch and see how the pricing is going. Generally you are better off not bidding, but if the property is sold in the room on the day then you will have the same right that any auction buyer will have – normally to complete the purchase within 28 days of the auction sale. It may be necessary to bid if the property will not reach its reserve.

Remember, this is a collective right and therefore a majority (more than 50%) of flat owners are needed. The next problem is that because you need to complete quickly at the end of the process, you will need all the funds in line before the auction date to be able to complete. You will not know the exact price until the sale room process is complete.

If you do want to go down this route, then the first step is to serve an acceptance notice (which needs more than 50%), there are then several other procedural steps to go through to protect your position. You will need a company (most likely) to be your purchase vehicle and there will be other notices to be served. In other words, you will definitely need professional assistance from a solicitor.

In practice, this route can be used successfully to buy your freehold, but it does require proper planning and preparation and may require one or more participants to ‘forward fund’ the exercise. If you would like to know more, or have a specific question, by all means do get in contact with me to discuss.

http://www.joomag.com/magazine/landlord-buy-to-let-magazine/0540853001421676588?short