Back to Basics - Your leaseholders may have the right to buy your property

15 November 2016


Are you, as landlord of a building containing residential flats, planning to:

  • enter into a contract to create or transfer an estate or interest in land;
  • surrender a tenancy;
  • grant an option or right of pre-emption?

Are you aware that certain tenants have the right to purchase the landlord's interest when the landlord proposes to make such a "relevant disposal" of its interest?

Otherwise known as the tenants' right of first refusal, this particular area of law is fraught with potential pitfalls. As the failure to observe this right can carry criminal sanctions, however, it is essential that the correct process is followed.

What?

Qualifying tenants have the right to acquire the interest that the landlord proposes to dispose of, on the terms on which the landlord proposes to dispose of it.

To trigger the right the premises being disposed of must contain two or more flats held by qualifying tenants. In addition, the number of flats held by qualifying tenants must exceed 50% of the total number of flats contained in the premises.

If the use of the premises is only partly residential, the internal floor area of the part that is residential must represent 50% or more of the internal floor area of the premises as a whole.

Who?

"Landlords" must give "qualifying tenants" a right of first refusal when making certain disposals.

The "Landlord" is usually the immediate landlord of the qualifying tenants of the flats but can also be a landlord who is not the immediate landlord if the intermediate tenancy is for a term of less than seven years, or is terminable within the first seven years at the option of the superior landlord.

There are a number of landlords, including local authorities and registered providers of social housing, who do not have to take account of the tenant right of first refusal and knowing whether or not you can take advantage of one of the exemptions could save a considerable amount of unnecessary work.

Broadly speaking, "qualifying tenant" is every tenant of a residential flat. Again, there are a number of exceptions to this, including any tenant occupying under a business tenancy or in connection with its employment. Similarly, tenants occupying under certain categories of residential tenancies, such as protected shortholds and assured tenancies (including assured shorthold tenancies) will not qualify for the right of first refusal.

When?

The right arises when a relevant disposal takes place, although care should be taken to ensure that the disposal in question is affected, as a number of transactions you might expect to be considered disposals are exempt.

How?

A landlord cannot make a relevant disposal unless it has first offered to dispose of the premises to the qualifying tenants by way of a prescribed form notice.

If the qualifying tenants wish to exercise their rights the "requisite majority" must do both of the following:

  • Serve an acceptance notice on the landlord; and
  • Nominate a person to purchase the property on their behalf.

The requisite majority of qualifying tenants means those qualifying tenants who have more than 50% of the available votes. Accordingly, the number of tenants who need to support acceptance of the offer and nomination will vary according to the number of flats in the building.

Do you think this might affect you?

Please contact Sarah Scott or Annabel Heath for further advice.


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.