Leasehold Property Associate Anne Albritton discusses the role of the Right of First Refusal (ROFR) when a landlord sells their freehold.
Anne considers what he ROFR means for leaseholders and what options they have.
What is the Right of First Refusal?
The Landlord & Tenant Act 1987 states that it is a criminal offence for a landlord to sell their freehold title without first offering it to the leaseholders in the building.
This offer of the freehold title to the leaseholders is known as the Right of First Refusal.
How does the Right of First Refusal work?
A landlord would need to serve ‘Offer Notices’ setting out all of the proposed terms of the transaction.
There are certain transactions exempt from this requirement but generally, the premises will need to comply with the eligibility criteria as follows:-
- The premises consist of the whole or part of a building;
- The premises contain 2 or more flats held by qualifying tenants (i.e. leases granted for more than 21 years); and
- The number of flats held by qualifying tenants is more than 50% of the total number of flats in the premises.
How long do leaseholders have to accept an offer on the freehold?
More than 50% of the qualifying tenants in the premises would need to accept the Offer within 2 months of the landlord’s Offer Notice (or such other period stated in the Offer Notice).
For example, in a building of 10 flats, at least 6 would need to participate.
In a building of only 2 flats, both flats would need to participate.
What is a Participation Agreement?
A Participation Agreement is a legally binding document between all of the leaseholders who are planning to purchase the freehold.
Where leaseholders have sufficient interest to accept the landlord’s offer, before an Acceptance Notice is served, we advise that the leaseholders enter into Participation Agreements with each other.
What is the purpose of a Participation Agreement?
The purpose of this is to set out the rights and obligations of the participants as a group and as individuals, and also those of the limited company, which is explained below.
A Participation Agreement would provide certainty of the steps and decisions to be taken in the freehold purchase, setting out the duties and obligations of the company and the participants, and making sure all participants provide funds in the agreed proportions.
Click here to read the full article, where Anne sets out your next steps after accepting the freehold offer.