Section 5 Notice for the private sale of a freehold.
Firstly, what exactly is a Section 5 Notice?
Qualifying tenants (leaseholders) are entitled to a Section 5 Notice as their Right of First Refusal offer to purchase the freehold of a building. It is relevant when freeholders desire to dispose of their freehold interest through private sale. The term ‘private sale’ can mean selling to a freehold buyer specialist or a private individual through a legal contract.
Whenever prepared and served, all Section 5 Notices must be issued in accordance with the Landlord and Tenant Act 1987. Failing to comply can result in a criminal conviction and a fine, as strict rules must be followed. It is recommended that if you are in any way uncertain of the process that professional advice should be taken.
The law prohibits the sale of the freehold under different terms within a 12 month period following the serving of a Section 5 Notice to a tenant / leaseholder. Should the leaseholder not accept the Right of First Refusal offer the freehold cannot then be sold at a lesser price to a different third party. The offer cannot be contested and it is non-negotiable.
Secondly, what is contained in a Section 5 Notice?
As a guide, you will find the following in a Section 5 Notice:
- The contact details of the freeholder.
- The address of the freehold sale.
- The acceptance date that the offer must be actioned.
- Details of any deposit should one need to be paid.
- The offered purchase price of the freehold.
It is critically important that any Section 5 Notice should be served in the exact format as dictated by law in order to protect the freeholder and the leaseholder. Written confirmation that the notice represents an offer made by the landlord to enter into a contract must also be included.
Qualifying for Right of First Refusal.
The requirement for a Section 5 Notice to be served is only when the property for sale plus the leaseholder / tenant qualifies for the Right of First Refusal.
In order for the freehold property to qualify there are a number of requirements that should be met:
- The property must contain two flats as a minimum.
- Qualifying tenants must own more than 50% of the flats in the property.
- The building must have a maximum of 50% that is in non-residential use.
In order for the leaseholder to qualify under Section 5 there are other requirements that should be met:
- The lease term must be a 21 year minimum.
- The leaseholder must not have a ‘short-hold’ or ‘assured’ tenancy.
- The leaseholder must not own three or more of the flats.
The Section 5 Notice should only be served if all of these requirements have been met.
There is a legal rule stating that Section 5 Notices must be served on at least 90% of the qualifying leaseholders. This exists in case some leaseholders cannot be traced.
Is there an expiry date for a Section 5 Notice?
There is a two month time frame from the date on the Section 5 Notice for a leaseholder to accept the Right of First Refusal offer. In order for acceptance to take place, more than 50% of leaseholders must serve a notice of acceptance on the freeholder.
Should notice be served beyond the two month time frame the freeholder is entitled to sell the freehold on the open market. This sale must be on the same terms as stated in the Section 5 Notice.
Get help serving Section 5 Notices.
Groundrent Fund can help you by serving Section 5 Notices free of charge, not only saving you money, but also ensuring that it is done in a law-compliant manner. Our specialist team have over 30 years experience in helping freeholders with Section 5 Notices and can ensure that your sale is a fast and easy process. After receiving your approval to proceed and the info we require to undertake the procedure, we can draw up and serve notices within a few hours with all legal obligations catered for.
If you would like help serving Section 5 Notices or would like further information about our service please get in touch today to find out how we can help.
Frequently asked questions.
Do I need to offer the freehold to the leaseholders?
If you are selling your freehold then in most cases you will need to give the leaseholders the Right of First Refusal. This is done by serving a Section 5 Notice on the leaseholders.
Who serves the Section 5 Notices?
As part of our offer we can also serve the Section 5 Notice on your behalf. We have an in-house legal team that will serve the Section 5 Notices. It is important to serve the notices correctly so that they are not invalid.
How much do you charge to serve Section 5 Notices?
We do not make a charge if you are selling the freehold to us.
How long do the leaseholders have once the Section 5 Notices have been served?
The process takes two months from the date of the Section 5 Notice and the leaseholders must accept the offer within the two months. If there is no acceptance notice within the two month period then the freeholder is able to sell the freehold to another party.
Do I need to offer the right of first refusal as a resident landlord?
Resident landlords under the Landlord & Tenant Act 1987 are exempt from offering the Right of First Refusal as long as they meet the following conditions. The building is not a purpose built block of flats and the landlord lives at the property as his principle residence for the past twelve months.
How do leaseholders qualify for the Right of First Refusal?
They qualify as long as they do not own more than three flats in the building. This includes most periodic and fixed tenancies but excludes agricultural and business tenancies.