The Landlord and Tenant Act 1987 provides that any landlord wishing to dispose of his interest in a building containing two or more flats must first offer its interest to the 'qualifying tenants' ie, broadly speaking, the tenants with long leases. If the landlord fails to do so, he will be committing a criminal offence while the purchaser may also be required, on an application to the Court by the tenants, to transfer his interest to the tenants even if he has already transferred it to a third party.
In outline, the procedure is as follows:
- The landlord must serve an offer notice on each tenant. The Act provides that the landlord will have satisfied this obligation if at least 90% of the total number of tenants in the building have been served. The notice must set out the terms on which the landlord wishes to dispose.
- The notice gives tenants the period (which must be at least 2 months) in which to accept the price and terms set out in the notice which use offered on a 'take it or leave it' basis. To accept the offer, at least 50% of the ‘qualifying tenants' must give a notice in response. If three or more flats are in common ownership, those flats are not included for the purposes of calculating the number of qualifying tenants or the number required to achieve the 50% threshold.
- If the tenants fail to serve an acceptance notice by the deadline, the landlord is free to go ahead and dispose of his interest at a price no less and on terms no less onerous to the buyer than those set out in the Section 5 offer notice.
- If the tenants serve a notice of acceptance, they must next nominate the entity which will enter into the contract on their behalf. They must do so within the period of time specified in the landlord's offer notice which is usually a period of 2 months after the date of the acceptance notice.
- Within 1 month after the date on which the tenants nominate the buying entity, the landlord must serve either a notice of withdrawal (if it no longer wishes to dispose) or send a form of contract to the tenants' solicitor.
- The tenants' nominated entity must then within a further period of 2 months 'offer' to exchange contracts and provide the deposit to the landlord. The deposit is 10% of the agreed premium payable.
- The landlord must then either exchange contracts within seven days or opt not to exchange. If he refuses to exchange, he is then unable to dispose of the property to a third party within a period of 12 months and this prohibition also applies should he withdraw at any point prior to the offer to exchange.
- Assuming the contract is exchanged, the sale proceeds to completion in accordance with its provisions.
