A Loop Hole for Landlords

5th April 2016

Part I of the Landlord and Tenant Act 1987 (as amended (“the Act”)) gives qualifying Tenants of flats a right of first refusal, enabling them to the purchase the freehold interest on the same terms if and when the Landlord proposes to dispose of its interest. The Landlord is unable to make a disposal without first having served a notice on the qualifying Tenants in a prescribed form, in accordance with the Act. The notice must be validly served and gives the option for a qualifying majority (50% plus) of the Tenants to serve acceptance notices, within a period of 2 months, confirming they wish to purchase upon the terms proposed in the Landlord’s notice

It is a criminal offence not to comply with the legislation where the building is occupied by qualifying tenants and therefore Landlords need to tread carefully not to be caught.

The rigid requirements mean that if the sale terms change then the whole procedure starts again including the two month time period.

A simple loop hole in the legislation allows the Landlord to dispose of the freehold, without suffering costs, delays and the uncertainties arising from serving notices. A simple step can be taken by the landlord of creating overriding leases (i.e. a new intervening lease) in respect of each flat within the building to the proposed Purchaser. The subsequent disposal of the whole building by the Landlord is thereafter not caught by the Act because the Seller is not the immediate Landlord and the qualifying Landlord is the Tenant of the overriding Lease.

The right of first refusal is complicated and the implications of not complying are severe including committing a criminal offence, we would therefore advise that you liaise carefully with us before proceeding.

Harrison Clark Rickerbys regularly act on behalf of Landlords selling freeholds and we are happy to provide you with legal advice to deal with the entire process.

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