Under the terms of Section 5a of the Landlord and Tenant Act 1987, where a landlord wants to sell the freehold interest in a block of flats, there is a statutory process that has to be followed.

This effectively means that the landlord has to offer the qualifying tenants in the block, the Right of First Refusal to purchase the freehold interest at a set figure.  

The notice must tell the tenants of the intention to dispose of the freehold interest and must give the tenants time to consider the offer (up to 12 months).

Within that period, the landlord cannot sell the freehold interest to another party nor offer the freehold to anybody else at a lower price than that proposed to the tenants.

This is effectively an opportunity for the tenants to purchase the freehold interest before it is offered on the open market or by auction.

If the landlord changes their mind, the offer to the tenant can be withdrawn at any time before the contract is binding (the tenants costs will be payable by the landlord if this withdrawal is more than 4 weeks after the initial offer notice).

Obviously, it is necessary for a freeholder to consult a valuer at an early stage in this process in order to obtain the value which should be stated within the Section 5 Notice to the lessees.

Because of the strict limits of the operation of Section 5 of the 1987 Landlord and Tenant Act, it is imperative that the figure is correct.

It is possible for tenants to be given prior notice of the intention to place the property to an auction.

The property can be sold at auction, and the purchaser will be under notice that a Right of First Refusal has been issued to the lessees and that the lessees could then enforce the sale to them rather than to the highest bidder in the auction room.

If the freehold interest in the block of flats is the only asset of a company then it is possible to transfer the interest by the sale of the company, without the tenants being able to exercise the Right of First Refusal.

Any disposal through Section 5a or Section 5b of the Landlord and Tenant Act 1987 is convoluted, and detailed discussions and preparations will need to be made by the landlord (and the qualifying tenants), if the disposal is to run smoothly.

Early discussions with the valuers at Kirkby and Diamond will help the understanding of the process.  

For more information on the process, please contact either Jean Howe on (01582) 738866 or Tim Sheridan on (01908) 678800.

Related Links:
Collective Enfranchisement For The Freeholder Of A Block of Flats
Collective Enfranchisement For Lessees of Flats