Tenants’ Rights of First Refusal

The Landlord and Tenant Act 1987 ("the Act") prohibits most landlords making a disposal (e.g. selling the freehold) without first offering the interest being disposed of to the qualifying tenants in the building. This applies to some residential and mixed use properties.

A landlord wishing to make a disposal must send the tenants an offer notice which sets out the terms on which the landlord is proposing to dispose of the interest and gives the tenants a period of time in which to accept the offer. If the tenants do not accept the offer then the landlord can make a disposal to a third party but this must be within a certain time period and on the same terms as offered in the notice.

There are very harsh consequences for failing to comply with this Act. The landlord would be committing a criminal offence and furthermore, it entitles the tenants to undo the relevant disposal and have the interest transferred to them at the same price. The recent case of Artist Court Collective Limited v Khan [2015] PLSCS 313 demonstrates this.

Facts: the freeholder of a property in London comprising eight residential flats and three shops on the ground floor sold the building to a company (of which the freeholder was a director) for £225,000. The tenants became aware of this transfer when a fish and chip shop opened in one of the commercial units and this prompted them to look into their rights. No notices were served on the qualifying tenants in accordance the Act. The tenants then served a notice on the company requiring details of the disposal and upon discovering the breach the tenants formed a company and served a notice on the company requiring the freehold to be transferred to them at the same price. The freeholder then realising his breach of the Act sought to try to rectify it by transferring the property back to himself for no value- thereby breaching the Act for a second time. As a result, the county court held that the tenants were entitled to purchase the freehold on the same terms as the second transfer - for no value!

This case illustrates the importance of following the correct procedure when a landlord is looking to dispose of an interest in a building. It is very important to note that the Act does not only apply to the transfer of a freehold. An extensive range of disposals are caught, including, for example, entering into a contract to dispose of the interest, the grant of an option, the disposal of a balcony and the disposal of airspace.

Whether you are a landlord or tenant I will be happy to advise you in relation your obligations and rights under the Landlord and Tenant Act 1987.

For further information please contact Christina Antonas at [email protected].