When you sell the freehold of a building the lessees need to be given the “Right Of First Refusal”. In essence this means that they must be written to with a formal notice giving them the opportunity its to purchase the freehold on exactly the same terms that has been agreed for the sale of the freehold.
Each leaseholder must receive a formal notice setting out the terms of the sale and in turn they have a period of two months to come together and decide whether or not they wish to take up their rights to buy the freehold interest. The notice is not negotiable and is a “take it or leave it” notice. If they do not come forward and the two month notice period expires the freeholder is then free to sell the property on the same terms as set out in the notices. The notices are valid for 12 months.
If we agree to buy your ground rents we offer a service whereby we will serve the notices on your behalf at no cost and will deal with any enquiries that the lessess may have.
The right of first refusal in the context of freehold ground rents typically arises under the Landlord and Tenant Act 1987 (UK). This legislation gives certain residential leaseholders the legal right to be offered the chance to purchase the freehold or a superior interest in their building before the landlord can sell it to a third party. Here’s a breakdown:
The right of first refusal ensures that qualifying leaseholders are given priority to purchase the freehold if the freeholder decides to sell. This protects leaseholders from their building being sold to an unknown third party without their knowledge or involvement.
1.Residential Leaseholders: At least 50% of the flats in the building must be owned by qualifying leaseholders. A qualifying leaseholder is typically someone holding a long lease (over 21 years).
Buildings where more than 50% of the internal area is non-residential (e.g., commercial). Certain public sector landlords are exempt (e.g., local councils).
Trigger Event: If the freeholder intends to sell the freehold or certain superior interests, they are required to serve a notice (Section 5 Notice) to the leaseholders offering them the chance to purchase.
2.Offer Price: The price offered must be the same as what the freeholder would offer a third party.
1.Section 5 Notice: The freeholder serves a formal notice to the leaseholders, providing details of the offer and the terms of sale. Leaseholders usually have two months to accept the offer.
2.Acceptance: If leaseholders wish to proceed, they must organize themselves (often through a residents’ association or a nominated person). They need to match the terms offered in the Section 5 Notice.
3.Completion: The leaseholders complete the purchase, often collectively, under the agreed terms.
Practical Considerations:Organizing Leaseholders: Collaboration among leaseholders is essential. Some may not be interested in participating, and others might need to arrange financing.
Legal Advice: It’s advisable to consult legal professionals to navigate the complexities of the process and ensure compliance.
Freeholder’s Non-Compliance: If the freeholder sells the property without following the proper procedure, the sale can potentially be challenged, and penalties may apply.