Section 5 Notices and The Right of First Refusal in Leasehold Law

‍The right of first refusal (RFR) in leasehold law is an essential concept for property owners and leaseholders. This Strangford Management article offers a comprehensive explanation of the RFR and the integral role of a section 5 notice in this process.

A Brief Overview of the Right of First Refusal

The right of first refusal is a provision in the Landlord and Tenant Act 1987, amended by the Housing Act 1996. This provision mandates that if the landlord intends to sell their interest in a property containing flats, they must first extend an offer to the tenants before proceeding with a sale to a third party. This right is not a tool for forcing a landlord to sell their property interest; instead, it provides an opportunity for the tenants to purchase the interest before it is listed on the open market.

Key Principles of the Right of First Refusal

While navigating through the intricacies of the RFR, it’s essential to understand some key principles:

      • The RFR is reactive, not proactive. It comes into play only after the landlord decides to sell, and the tenants can only respond to the landlord’s offer.

      • The landlord sets the price. No tribunal or third party can determine the price. However, the landlord cannot offer the property to another party at a lower price or on different terms within 12 months of their initial offer.

      • The RFR is not available to tenants of local authorities, housing associations, or in some cases where the landlord resides in the building.

    Understanding the Concept of Qualifying Tenants

    In the context of the RFR, qualifying tenants are long leaseholders who hold their lease directly with the person intending to sell their interest. The term excludes assured tenancies, business and agricultural tenancies, and tenancies dependent upon employment. Additionally, a tenant owning three or more flats in the same building is not categorised as a qualifying tenant.

    Comprehending Relevant Disposals

    A relevant disposal refers to the sale or transfer of an interest in a property by the landlord. In most cases, this disposal will activate the RFR. However, certain disposals, such as the grant of individual tenancies, mortgages, and disposals to a receiver or trustee in bankruptcy, are exempt from this provision.

    The Critical Role of a Section 5 Notice

    A section 5 notice is an essential instrument in the RFR process. The landlord serves this notice to the leaseholders when they intend to sell the freehold. This notice is a legal obligation, providing leaseholders with the opportunity to purchase the freehold before it’s listed on the open market.

    The Implication of Not Exercising the Right of First Refusal

    If there are not enough qualifying tenants to accept the landlord’s offer, or if none of the parties are interested in purchasing the landlord’s interest, the initial 2-month period will pass. After this period, the landlord is free to sell the premises to a third party of their choice on no worse terms than in the initial offer within 12 months of their notice.

    The Consequences of Non-compliance with the Right of First Refusal Obligations

    If a landlord fails to comply with their obligations under the Landlord and Tenant Act 1987, they could face criminal sanctions or a civil action. An offending landlord may be liable to pay a fine, and if the landlord is a corporation, an officer of the body may also be liable in their personal capacity. In addition, any interested person may bring civil proceedings against a landlord in default of their obligations under the Act.

    Professional Assistance

    The right of first refusal process can be complex and difficult to navigate. Therefore, it is highly recommended that leaseholders engage the services of a solicitor and a surveyor with experience in this area. They can provide invaluable guidance and support, ensuring that leaseholders fully understand their rights and obligations.


    The right of first refusal is a significant provision in leasehold law, offering protection to leaseholders and ensuring fairness in property transactions. However, its complexities necessitate a comprehensive understanding and professional assistance to ensure leaseholders can effectively exercise their rights.

    This detailed analysis of the RFR and the role of a section 5 notice aims to provide leaseholders with a deeper understanding of their rights and obligations. By gaining this knowledge, leaseholders can make informed decisions and successfully navigate the complexities of leasehold law.

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