Selling a Freehold – Right of First Refusal

If you own a leasehold flat, you might assume that because someone else owns the freehold of the block, they have carte blanche to do as they please. This simply isn’t true. As a leaseholder you have a number of legal rights. And one of those is particularly important if your freeholder is thinking about selling the freehold of your block, because you and your fellow leaseholders have what is known as “the right of first refusal” – or RFR. This means that if the freeholder wishes to sell, then not only do the leaseholders have the right to buy it – in fact the freeholder has a legal obligation to offer the freehold to the leaseholders first.

In simple terms, this mean that the leaseholders have to be offered the opportunity to buy the freeholder before the landlord starts to negotiate with anyone else.

In this case, leaseholders can act only to the freeholder’s offer (although, of course, they do have the separate right to join together to buy the freehold in a process known as collective enfranchisement).

Thinking of Selling or Buying a Freehold? Got Questions About the Right of First Refusal? Call our specialists on FREEPHONE 0800 1404544 for no strings attached FREE initial phone advice.

The criminal offence

It is actually a criminal offence for a freeholder to sell the freehold on the block of flats without first offering the right of first refusal to you as the qualifying residents.

Does the right of first refusal apply to every building?

No.These rights don’t apply to an individual leasehold house. In order to qualify for RFR, the building must:

·         Have less than 50% of non-residential use

·         Have at least two flats

·         Have more than half of the flats held by leaseholders who qualify

Right of First Refusal – What defines a “qualifying leaseholder”?

Most leaseholders have the rights of first refusal –  with the exception of those with short-hold or assured tendencies, tenancies which depend on employment, and business tenancies.

In addition, a qualifying leaseholder can only own a maximum of two ‘long leases’ in the building. A “long lease” is one that was originally granted for at least 21 years. As a result, anyone owning the leases on three or more flats in a building isn’t a qualifying leaseholder, and therefore cannot take part in any right of first refusal claim.

Right of first refusal notice

If the freeholder takes decide to sell the freehold, they must send a formal Office Notice to all qualifying leaseholders, offering them the chance to buy the freehold under their rights of first refusal.

It’s worth noting that the right of first refusal notice does not need to be served on each and every qualifying leaseholder. However to be valid, the notice must be served the freeholder on a minimum of 90% of qualifying leaseholders in the building (or all the leaseholders if there are fewer than ten who qualify).

How many leaseholders do we need to exercise the right ?

Once the right of first refusal notice is served, more than 50% of the qualifying tenants must agree to participate fort he freehold purchase to go ahead.

For example, if your block of flats has forty qualifying tenants and only fifteen of them agree to participate in the process, the leaseholders can’t proceed and the freeholder will be free to sell to any third party.

If you do decide to take up your RFR, then unless your block is a very small one, we strongly recommend you get your solicitor to draft a participation agreement – which is a legal agreements, binding the leaseholders into the freehold purchase.
Click here to read more about Participation Agreements

Exercising the right of first refusal

If you wish to buy the freehold using your right of first refusal, you will need to start off by getting your solicitor to send a Residents’ Notice of Acceptance to your freeholder within two months of the date of the Section 5 Notice.

That deadline is crucial. If you miss it, you will be legally deemed to have passed on the chance to buy the freehold . That means that your freeholder will be perfectly free to sell to another party if they want to.

Can leaseholders challenge the freeholder’s price of the premium?

No – they can’t directly challenge the freeholder’s valuation price.

However, it’s worth noting that if the leaseholders do turn down the chance to buy the freehold at the price offered on the basis that it simply too expensive, the freeholder is  prevented from selling the freehold at less than this price to any other party within the next twelve months.

In other words, even if the leaseholders do pass on the offer, the offer price is the price anyone else must also pay for the freehold. If the freeholder wishes to sell to someone else for a lower price, he must also offer it again to the residents at this new reduced price.

If the leaseholders feel that the that the asking price in the Section 5 Notice is unreasonably high, they can either pass on the offer or start the process of collective enfranchisement themselves.
If the freeholder doesn’t agree with the enfranchisement price offered by the leaseholders, then the question of premium valuation can be decided by the First-Tier Property Tribunal.
Click here to read more about the process of buying your freehold together using collective enfranchisement

Selling a Freehold – What happens when the freeholder ignores the right of first refusal?

As indicated previously, it is a criminal offence for the freeholder to ignore the right of first refusal. However, in addition, if the freeholder does sell to someone else, then the leaseholders can serve notice on whoever buys the freehold and demand to see the financial details of the transaction. Then, the leaseholders can force the owner to sell them the freehold at whatever price they paid for it.

Right of first refusal – how our solicitors can help.

If you want to ensure that you successfully take up the right of first refusal and join together with other participating leaseholders to buy the freehold, you really do need a specialist solicitor.

Very few solicitors deal with lease extension, fewer still with enfranchisement and very few indeed regularly deal with right of first refusal claims.

Fortunately, our specialist five strong leasehold team have the experience you need.

So, if you have been served with right of first refusal notice, get in touch with us immediately – so we can explain your options in the process in more detail, answering any questions you may have.

In particular we can help you with the following:

  • Checking the Offer Notice and confirm its validity.
  • Consider all title documents
  • Instruct a specialist valuer if you want to check whether the premium is reasonable
  • Draft Acceptance Notice and arrange for all participating leaseholders to sign it
  • Serve the Serve Acceptance Notice within the relevant timescale on the freeholder.
  • Advise on the necessity of setting up a company as “a Nominated Person”, and if you wish, setting up that company for you.:
  • Drafting Notification of Nominated Person and serving that on your freeholder before the deadline
  • Drafting Participation Agreement and Arranging for signature of it by all Participants
  • Liaising with the freeholder’s own solicitors
  • Agreeing wording for the transfer document
  • Arranging for completion and registering the transaction with the land registry.

The process can be quite complex because it also involves potentially disputed apportionments of existing and future ground rent and service charge liabilities, as well as arranging for consents or discharge of mortgages.

Further complications can occur where there is what is referred to as a “appurtenant property”, a legal phrase which includes garages, gardens, yards, and outbuildings which may be involved in the freehold purchase.

Looking for Specialist Advice on the Right of First Refusal? Call us today

It’s so important to get the right legal advice when it comes to exercising your freehold right to buy.

Wherever you live, we can help you. Our team are genuine specialists – freehold purchase and lease extension is all they do.

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