What To Do When your Landlord decides to Sell the Freehold

November 4, 2021 - by Mike Somekh

You just received a letter in the post saying that your Landlord is serving a Section 5 Notice and intends to sell the Freehold of your building, making you an offer. You know deep down that you should examine your options but where do you start, and what even is a section 5 anyway?

Don’t panic: Here’s the answers and next steps you need

What is a section 5 notice?

A Section 5 Notice is served to qualifying tenants (aka, building or property leaseholders) to inform them that the landlord intends to sell the freehold of the property.

This is a legal obligation under the Landlord and Tenant Act 1987 called the Right of First Refusal, and it means that landlords must serve the notice to leaseholders before they can sell the freehold interest on the market. Failing to do so is a criminal offence.

There are various types of Section 5 notices (5a, 5b, 5c, 5d) to handle different circumstances including where the freeholder intends to sell the freehold via an auction. However the process is roughly the same for each.

Leaseholders served with a section 5 notice must first determine how long they have to accept, but there should be a period of at least two months given for leaseholders to make a decision. If they are content with both the price and the terms of the acquisition, they must follow a statutory process starting with serving an acceptance notice on the freeholder which must be delivered by a majority of the eligible tenants.

To have a majority of qualifying tenants, 51% or more of the flats in a building must be occupied by tenants who have a lease longer than 21 years. Together, those tenants then must choose, or nominate, a buyer, which is normally a company.

What does a right of first refusal mean for tenants?

The first thing is to realise that this is a great opportunity which may never come round again.

The Freeholder is disposing of their estate either to an unknown purchaser such as a developer or via an auction.

Under UK law, you as a leaseholder have the right of first refusal and can purchase your freehold should you wish.

Challenges

Exercising your right is not that easy. You need to:-

  • Identify volunteers to lead the process
  • Recruit at least 50% of the apartment owners in your building to collaborate
  • Decide on the financial merit of purchasing the freehold at the given offer price
  • Agree on the funding structure
  • Nominate or create a purchaser (often a limited company)

All before officially accepting the offer in the correct legal form.

And you have 2 months or less to do all that.

Then of course, you need to collect the funds and complete the transaction.

Sounds daunting? Don’t lose heart!

Unlike a Collective Enfranchisement claim, this take-it-or-leave-it offer means that you do not need to haggle over the price.

Being well organised and cohesive is key.

Experts can help with specific parts of the process.

  • Engage a qualified surveyor to determine the market value of the Freehold. If the offer price is less than market value, then you can concentrate on organising leaseholders to accept it.
  • There are many very good solicitors who can perform the legal and conveyancing steps required. Seek one out that has relevant experience.

Alternatively, you can engage an expert to mentor you and manage the entire process from end to end, often with a cost saving.

Take advantage of the opportunities that come with owning your Freehold. Modernise your leases, improve the management of your building and prioritise those works, repairs and improvements. All this will add real value to your apartments and allow you to spend your precious time on what’s important – your life.

If you can do all that, you will never look back!