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Mixed-use properties and qualifying tenants

By Mohammed Rahman

Borneo Martell Turner Coulston

IF a landlord in planning to sell the freehold of a building, which contains residential flats, there are certain circumstances in which they must give the leaseholders of those flats the opportunity to purchase the building on the same terms as if they were to enter into a contract with a third party purchaser.

The landlord must serve on each of the leaseholders, a notice, giving them a specific period of time to consider whether or not to take up their first right of refusal. If a landlord fails to serve the notice, or does serve the notice but sells the property prior to the expiry of the notice, then they are committing a criminal offence.

If you are a landlord of a mixed-use property (or indeed a 100 per cent residential property), then it is absolutely crucial that you take advice on this and make sure you comply with the obligations.

In order for the rules of first right of refusal to apply, the following criteria need to be met:

* The freehold building must contain two or more flats.

* The residential units within the building must make up at lease 50 per cent of the building.

* Of the part of the build which is made up of residential flats, more than half of those flats must be held by ‘qualifying tenants’.

* The first right of refusal may not apply if the landlord themselves live in the building.

* If a leaseholder is served with a notice by their landlord, it is absolutely vital that the leaseholder instructs a solicitor, who is familiar with this area and this type of notice. It is important to know that this is a niche area, and therefore you may need to obtain specialist advice. As this process has strict time scales, if the leaseholder does want to buy the freehold, they must reply to the notice correctly within the statutory time scales otherwise they may lose their right to buy and the landlord will be free to sell to anyone they choose.

As a landlord of a building which contains residential flats, you would have an obligation, before entering into any contact with a purchaser, to give the leaseholders and qualifying tenants of those flats, the opportunity to buy the freehold on the same terms as those offered to a third party purchaser. This is governed under Section 5 of the Landlord and Tenant Act (1987).

The landlord must serve notice on the leaseholders and provide those leaseholders the opportunity to take up their first right of refusal.

Provided the landlord complies with the legislation and gives the tenants an opportunity to purchase the freehold, but the tenants do not take up the offer to buy the freehold, the landlord is then free to sell to anyone they choose for the same price offered to the leaseholders.

If you are a landlord who owns a property which contains residential flats, either with or without commercial use within the same building, or if you are a leaseholder and you have either been served with a Section 5 Notice or are aware that the freeholder is marketing the property for sale and you would like advice on these points, contact Mohammed Rahman at Borneo Martell Turner Coulston Solicitors by emailing or call 01604 622101.

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