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Freeholders: Section 5 Notices
Section 5 - sale of freehold via ‘right of first refusal’
Section 5 (sale of freehold via ‘right of first refusal’ – If you own a freehold to a building and you are the immediate landlord (freeholder) to the residential long leasehold owners (where the properties have leases of 21 years or more) and at least two-thirds of the building is structured in this way), then if you wish to dispose of your freehold interest you must first offer this to the leaseholders under the so-called ‘right of first refusal’ under the Landlord and Tenant Act 1987.
This need to serve so-called ‘right of first refusal’ notices may arise if you are an intermediate landlord which is the immediate landlord to the residential long leaseholders in a qualifying building.
Failure to do so is a criminal offence.
There are two main ways of dealing with this process. Firstly, by way of serving a Notice under Section 5A which stipulates a price that you would be prepared to accept for the sale of the freehold interest. It offers the leaseholders two months to respond, indicating whether they accept or not. If a majority accept and then follow through further steps in the process, within the strict timeframe set out by the legislation, they are able to purchase the freehold interest.
If they fail to accept the offer to sell, then you are free to sell the freehold to the property for a further period of a year provided that you do not sell the freehold for less than the price quoted in the original offer Notice.
The second way of dealing with this situation is by serving a Notice under Section 5B of the Landlord and Tenant Act 1987. This applies should you wish to dispose of your freehold at auction and the same criteria mentioned above apply. By following this process, Notice is given to the leaseholders of the intending sale of the freehold at auction.
Provided that appropriate steps are taken by the leaseholders, they can reserve the right to purchase the property with the same price as any successful bidder for the freehold at auction. They would need to complete the process within the same timescale as that set down under a standard auction contract (usually 28 days for completion). Our members can advise in further detail if you wish to pursue either of these options.
This is only a brief summary of the position and is not meant to be taken as definitive legal advice. For that, you may wish to contact one of ALEP’s solicitor members.
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