Qualifying buildings — when does the LTA 1987 right of first refusal apply?
The right of first refusal applies only to buildings that satisfy four cumulative conditions under LTA 1987 s.1: the premises contain at least two flats; more than 50% of the flats are held by qualifying tenants; the landlord is not a resident landlord; and the landlord is not an exempt landlord (local authority or registered housing association).
- Two or more flats in the same building — a purpose-built block, converted house, or mixed-use building where the residential part contains 2+ flats
- More than 50% of flats held by qualifying tenants — calculated by number of flats, not value; AST tenants are NOT qualifying tenants
- No resident landlord — the freeholder has not lived in the building as their only or principal home in the past 12 months; a company freeholder cannot be a resident landlord
- No exempt landlord — private freeholders and their companies are not exempt; local authorities and registered housing associations are
The criminal offence under LTA 1987 s.10A is committed when the relevant disposal is MADE — in a sale, this is at exchange of contracts, not completion. A landlord who exchanges without serving the offer notice has already committed the offence. Serving the notice after exchange does not cure the breach.
Offer notice procedure — content, service, and acceptance
Where the right of first refusal applies, the freeholder must serve an offer notice under s.5 LTA 1987 on each qualifying tenant individually before making the disposal.
- Content of offer notice: the property being disposed of; the consideration (price or other terms); conditions attached; the acceptance period (minimum 12 weeks from service)
- Service: registered post to each qualifying tenant's flat or last known address; where identity/address not reasonably ascertainable, service by advertisement under s.5B LTA 1987
- Acceptance: at least two-thirds of qualifying tenants must serve an acceptance notice within the period and nominate a purchaser (a company formed by the leaseholders, a trustee, or any individual they choose)
- Post-acceptance: negotiation of contract on the offered terms; if terms not agreed within 2 months, either party may apply to FTT to determine terms (s.8B LTA 1987)
- If two-thirds do not accept within the period: the freeholder may sell to a third party, but only on the same or better terms within 12 months of the offer notice expiry
The purchase notice remedy binds the new purchaser — not the original landlord who breached the obligation. A purchaser who buys a freehold without checking whether the right of first refusal applied may be compelled to resell to the leaseholders at the original purchase price within 6 months of the leaseholders discovering the breach. Always check before buying.