Block Management – What is a Section 5, Right of First Refusal?

20th July 2018

One of the most sensitive subjects of Block Management is a Section 5, Right of First Refusal, this is when a landlord is looking to sell their interest in a building containing flats, should they do this, they must by law, first offer it to the tenants before putting it on the open market. Under the Landlord and Tenant Act (1987), a Section 5 notice must be served to all flat owners, giving them the opportunity to purchase the freehold to their apartment, this is known as ‘The Right of First Refusal’. The landlord must provide adequate time for them to consider the offer and cannot sell it to another party during this time. If over half of the leaseholders wish to acquire the freehold, then they must notify the freeholder within the time limits set out in the notice, which is usually two months.

A key principle of the Right of First Refusal is the opportunity it gives to tenants to purchase the interest of the building, it is not a means of forcing a landlord to sell the freehold. The right follows the landlords’ decision to sell and the tenants can only react to the landlords’ offers. Leaseholders have been campaigning for a leasehold reform regarding those who end up in this situation. Whilst some freeholders see this as a negative others see it as an opportunity allowing more control of the building they are living in.

Should you be in an opportunity where you can purchase the freehold, benefits include:

• Not charging ground rent
• Not charging for fees for licenses
• Can freely make home improvements
• Reduced service charges
• No future fees to extend the lease

However, the time restraints have been a cause for concern, whereby a leaseholder that fails to respond within the time frame lose their legal right to buy the freehold and then the freeholder can then sell it to any other person or parties.

More recently, the Law Commission has announced a number of reforms for the leasehold sector, with the ban of the sale of new-build houses as leaseholds from December and proposed suggestions that leaseholders will no longer have to own their property for two years before they can make a claim.

If you have any Block Management queries and would like to speak to our team of specialists please contact us.

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