You have received a section 5A notice and have made an enquiry with us about what to do next. You have either already instructed us to act on your behalf (along with your neighbours) or are considering doing so. In this guide we assume that will we be acting for you. If you instruct a different law firm, ensure they are experienced in the right of first refusal under the Landlord and Tenant Act 1987.
If you own your flat jointly with any others, such as a partner or family members, you must act together in this matter. References to "you" and "your" in this guide mean all co-owners of your flat.
This guide is intended only as a general introduction. It is not a substitute for detailed legal advice. Please speak to us if you have further questions or you are interested in accepting the offer made in the section 5A notice. As a first step, we will confirm whether you are entitled to the right of first refusal and whether the section 5A notice was correctly prepared and served.
To understand this notice, you must first understand how your building is owned:
Your landlord has given you a section 5A notice because they intend to enter into a contract to dispose of all, or some, of their interest in the building, for example, to sell it to another person or company.
Where the building satisfies certain criteria, the landlord cannot proceed with this disposal unless the following have first taken place:
This is the "right of first refusal": a collective right which can only be exercised by some or all of the qualifying tenants in the building, acting together. You cannot accept this offer by yourself.
The section 5A notice should set out what the landlord is proposing to sell. Often, this will be the freehold, or a lease, of the whole building. Sometimes the landlord may be selling only part of the building. It is important that you understand what the landlord is offering, so that you and your neighbours can decide whether to accept the offer. If you are unsure, please let us know.
For a building to qualify for the right to first refusal, it must contain at least two flats held by qualifying tenants. If there are more than two flats, more than half must be held by qualifying tenants.
Generally, a tenant of a flat will be a qualifying tenant. There are some exceptions, such as:
If you own your flat jointly with any other tenants (for example, a partner or spouse), you count as one qualifying tenant together. This is important to remember when counting how many qualifying tenants must accept the offer.
You have received a section 5A notice and so the landlord believes you are a qualifying tenant. We can advise you whether this is correct.
The landlord's offer is made to the qualifying tenants jointly. This means:
The offer must be accepted by a requisite majority of the qualifying tenants (the participants). In brief, this means more than half the qualifying tenants must accept the offer. For example, if a landlord wants to dispose of a whole building and in that building:
The benefits will vary depending on factors such as what the landlord is selling, your personal circumstances and relationship with neighbours. For the participants, the main benefit will usually be the opportunity to run and manage your own building. You can collectively control what works are done when, and at what cost.
However, managing a building can involve a considerable amount of work. There are a lot of legal obligations on landlords, particularly in relation to service charges, that you will need to become familiar with and comply with. Repair and maintenance obligations must be taken seriously, because of the health and safety risks that can arise if the building is in disrepair. Decisions will need to be made over matters such as when to paint exterior woodwork or repair roof tiles. Disputes may arise as each decision will affect everyone personally and different people will have different priorities. The tenants that accept the offer will also be able to grant themselves new, longer leases. This should increase the value of their flats.
The section 5A notice will set out the main terms of the landlord's offer, including the purchase price and any deposit payable. These terms are non-negotiable but the participants may want to jointly instruct and pay for an independent valuation so that you can see whether the price seems fair. This may help you decide whether to proceed with the offer.
As well as the purchase price, there will be other costs to pay, such as legal costs and stamp duty land tax (in England) or land transaction tax (in Wales). The participants should enter into a participation agreement to document how the price and other costs will be split between the participants. We will draft this document.
Establish as soon as possible whether you have enough participants to accept the offer and reach agreement on how the costs of the purchase will be split between the participants.
Act quickly to instruct us (or another law firm) to act on behalf of the participants. We will go through various formalities before we start work, including collecting evidence of each participant's identity. We will also ask the participants to appoint a single person as our main point of contact. We will serve a written acceptance notice on the landlord, by the deadline set out in the section 5A notice. This deadline can be extended, if the landlord agrees. This notice is from all the participants and must give all of their details. If the deadline is missed, you will no longer be able to accept the offer.
It is important to act quickly in instructing lawyers and to respond quickly to any queries. Any delay might mean you miss the chance to accept the offer.
Once an acceptance notice has been served, the participants must collectively nominate a person or persons, or a company, to purchase the landlord's interest on their behalf. The nomination must be made in a formal written notice to the landlord.
The section 5A notice should set out a separate deadline for nominating a purchaser, which should be at least two months after the acceptance notice is served. This deadline can be extended, if the landlord agrees. It is possible to nominate a purchaser in the acceptance notice, but the participants will often need the extra time to prepare.
The participants can nominate whoever they wish as the nominee purchaser. Often, they choose to set up a company which they can all take shares in. This can be beneficial for reason such as:
If a company is formed, the participants will need to appoint directors and a company secretary and allocate responsibility for Companies House filings (such as company accounts). Internal policies will also need to be agreed, such as how decisions about the building will be made going forward. Once the participants have nominated a purchaser, the landlord has a month to supply a draft contract, on the terms set out in the section 5A notices.
The nominated purchaser then has two months to sign the contract and return it to the landlord with the deposit, unless the landlord agrees an extension. Once the landlord has received the signed contract and deposit, it has seven days to enter into the contract (exchange). After exchange, the participants will be legally bound to proceed with the purchase. The contract will set out the date on which the purchase will be finalised and the remaining purchase money paid.
There are consequences if either the participants or the landlord misses a deadline in this process.
It can be difficult to contact other qualifying tenants, particularly if they do not occupy their flat or are located overseas. We can help you to find the details they have lodged with the Land Registry. These details will usually be limited to a name and address, but the address might not be up to date. Alternatively, you can try to obtain contact details from anyone who is occupying their flat, or even from the landlord or managing agents. Data protection laws may limit their ability to share contact details with you, but you can provide them with your contact details and ask that they pass them on. If you are not able to contact all the qualifying tenants by the deadline set out in the section 5A notice, this may mean you cannot form a requisite majority and are unable to accept the offer.
The participants are not legally bound to continue with the purchase until exchange has taken place. Until exchange:
If a participant withdraws from the purchase, they may have to pay some of the legal fees and costs to date. This will depend on what has been agreed between the participants. The remaining participants will need to re-negotiate how the price and other costs are divided between them. If they cannot reach agreement, they may all need to withdraw.
If all participants withdraw, they may have to pay some of the landlord's costs. The landlord has 12 months to sell the same interest to another buyer. They must not sell for less than the price in the section 5A notice, or on different terms from those in that notice, else new notices must be served. The landlord can also withdraw from the sale at any point up to exchange. If it does, it cannot sell that interest during the 12 months from the date the withdrawal notice is served. The landlord may also have to pay some of the costs incurred by the participants and the nominated purchaser.
If you are not interested in accepting the offer, you do not need to do anything, although it can be helpful to tell your neighbours that you do not want to proceed. Depending on the number of flats in the block, it may still be possible for the other qualifying tenants to accept the offer.
If the offer is not accepted, the landlord has 12 months to sell the same interest to another buyer. They must not sell for less than the price in the section 5A notice, or on any different terms from those in that notice, else new notices must be served.
The same rules apply if the qualifying tenants accept the landlord's offer but do not nominate a purchaser by the required deadline, or if the participants miss the deadline for signing the contract. If the landlord does not submit the draft contract or exchange by the required dates, the sale will not proceed and the landlord cannot sell that interest for the next 12 months.
If you want to accept the offer, you (and your neighbours) need to work quickly. You need to:
Collectively appoint us (or another law firm) as soon as possible, so that we can conduct the necessary identity checks and serve the acceptance notice by the deadline.
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0330 127 1934
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