In certain circumstances, where a landlord is proposing to dispose of an interest in a “qualifying building”, the landlord must first offer the disposal to the “qualifying tenants” of that premises.
This is known as the ‘Right of First Refusal’ pursuant to the Landlord and Tenant Act 1987 (“the Act”).
What is meant by a qualifying building?
- It must contain at least two residential flats; and
- More than 50% of the flats in the building must be held by qualifying tenants; and
- No more than 50% of the building can be used for non-residential purposes.
What is meant by qualifying tenants?
- These typically include long residential leaseholders and most fixed or periodic tenancies.
- There are some exceptions such as a long leaseholder who owns three or more flats in a building. In this situation, the leaseholder would not be a qualifying tenant in respect of any of these flats and would not be entitled to the Right of First Refusal.
- Assured or assured shorthold tenants are also specifically excluded.
What is the procedure should the Act apply?
The procedure depends on how the landlord intends to dispose of the interest but generally:
- The landlord proposing to dispose of his interest must serve a formal notice on the qualifying tenants making the offer of first refusal. This is often referred to as the ‘Offer Notice’ and must specify the proposed terms of the disposal including: the price and the date by which the offer must be accepted by the requisite majority of the qualifying tenants (at least 50%), which must not be less than two months from the date of the notice.
- If the offer is not accepted by this requisite majority, the landlord is free to dispose of the interest on the open market provided that any such disposal is on no less favourable terms than offered to the qualifying tenants, and that the disposal takes place within 12 months.
- If the requisite majority accepts the offer by the deadline specified in the offer notice, it then has a further two months to inform the landlord who is to be the nominated purchaser of the interest. If these requirements are complied with, the acquisition proceeds to completion.
- Should the qualifying tenants fail to comply with this second deadline, the landlord is again free to dispose of the interest on the open market as outlined above.
Consequences of non-compliance by the Landlord
- Failure by the landlord to comply with the Right of First Refusal procedure is a criminal offence punishable by a level 5 fine on conviction (currently £5,000).
- There are also civil remedies available to qualifying tenants including compelling the new landlord, who has acquired the interest, to transfer the interest to them.
If you are a landlord or a potential qualifying tenant for the purposes of the Act, and would like expert advice and assistance please contact us.