Thirsk Winton LLP

Right of First Refusal – Pros and Cons

If you live in a block of flats, whether purpose built or in a converted house, then your Freeholder has an obligation to offer you the chance to purchase the freehold if they ever want to sell it. This is known as the “Right of First Refusal” and applies whether the Freeholder is going to sell the Freehold to a 3rd party by way of a private contract, or to the highest bidder by way of a public auction.

The process involves your Freeholder serving a formal notice on all the tenants in the building making the offer to sell the freehold to you collectively and either setting out the fixed purchase price or the date of the auction. If you and your fellow flat owners are interested in purchasing the freehold then it is very important that you act quickly once you receive this notice, as you will only have 2 months to respond by way of counter-notice confirming that you wish to take up the offer. If you miss this deadline then the Freeholder is able to proceed to sell the building to a 3rd party without any further need to offer it to you and you will have lost your opportunity.

It is generally beneficial to purchase the freehold of the block of flats collectively as it allows you and your fellow flat owners more of a say on what should happen to the building and can ensure that maintenance and repair takes place quickly and without exorbitant costs. Purchasing the Freehold via the route of accepting a right of first refusal offer from your Freeholder can also be beneficial as often the process can be quick and the legal and surveyor’ fees are not as high since there are fewer steps involved.

However, you should always be aware of the potential downsides as well. If the freehold is being sold by way of a private contract then the purchase price offered to you is fixed and there is little to no room for negotiation. This is because the Freeholder is not required to offer it to you at a reasonable price, only at a price that they are getting for it by way of their proposed sale. This also means that there is no recourse for you to request that the Property Tribunal make a determination of the premium and so the offer is in essence a “take it or leave it” offer which may be too expensive for some of the flat owners. The same occurs when it is sold via auction as you will be bound by the highest bid and you will either need to accept that price or walk away from the offer.

Additionally the Freeholder may attempt to impose some onerous conditions of sale, which again you have little to no ability to negotiate on, since it is considered a simple matter of offer and acceptance, which, if you do not accept it, the 3rd party purchaser will instead.

Though it may seem that these downsides really prevent you from purchasing the freehold collectively, it isn’t every time that a Freeholder will make life difficult by making the premium very high or by imposing onerous conditions of sale. Additionally, even if the freeholder does attempt to do so, there is another option available if the offer has galvanised you and the other flat owners into wanting to purchase the freehold.

That option is to serve a formal notice of your own via a different procedure known as Collective Enfranchisement. Under that route you require the majority of flat owners to collectively seek to purchase the freehold, however the premium can be negotiated and if you cannot reach an agreement with the Freeholder then you can seek a determination by the Property Tribunal as to its reasonableness. Furthermore, the conditions of sale are determined by Statute and are not left to the Freeholder to impose without checks.

If you have been served a “Right of First Refusal Notice”, or if you simply want to find out more about the options of collectively purchasing the freehold of your block of flats, then speak to a member of our Enfranchisement team today.