Tenant’s Right Of First Refusal

Following the publication of a 1985 government report into home ownership, the Landlord & Tenant Act 1987 (LTA) was rapidly enacted to give leasehold residential tenants a right of first refusal when their landlord sold the freehold. In 1996 this badly drafted "obscure" piece of legislation was overhauled. This article considers the implications for pharmacy owners whose commercial premises are located within the same building as residential flats.

This is particularly important if you are the building owner intending to sell.

The Right of First Refusal

Where the LTA applies, a landlord is prohibited from disposing of a freehold, unless it is first offered to the residential tenants of building. Penalties of up to £5,000 may be imposed for non-compliance.

The Act will apply if:

the building contains two or more flats held by "qualifying tenants" and the number of flats held by "qualifying tenants" exceeds 50% of the total number of flats. if the residential flats are above a pharmacy, the floor area designated for residential use must be more than 50% of the total floor area of the whole building. in order to be a "qualifying tenant" the tenant must have a long lease which is not a protected or assured tenancy, a business tenancy or one which is linked to the occupiers' employment. Note that if the residential tenants occupy under Assured Shorthold Tenancies then the LTA provisions do not apply. a tenant will not be a 'qualifying tenant' if they are a tenant with long leases of more than 2 flats in the building. The Relevant Disposal

Not all dealings with a freehold will trigger the obligation to first offer it to a tenant. Those which are exempt include granting a single tenancy or creating a mortgage. Disposals which will be caught by the legislation include:

the grant of an option or right of pre-emption; the surrender of a tenancy; entering into a contract to transfer or create an interest in land If as landlord you are required to make an offer under the LTA you will need to serve a formal notice. This will need to be done strictly in accordance with the terms of the legislation.

You should seek legal advice before serving any notices under this legislation as the process is somewhat complex. Invalid notices will not discharge the landlord's obligation to offer the freehold to the tenant and failure to correctly serve a notice could lead to criminal sanctions.

Accepting the Offer

The offer notice should state the period within which...