Rights of First Refusal: Whether Qualifying Tenants are Entitled to Acquire the Freehold of an Estate Containing Multiple Buildings

Where a landlord serves notices under s.5 of the Landlord and Tenant Act 1987, how should the statutory procedure be interpreted where an estate comprises multiple buildings?

The background

In FSV Freeholders Limited v SGL 1 Limited [2023], the landlord proposed to dispose of the freehold of a number of blocks of residential flats (Blocks A-E) on an estate in Liverpool.

The landlord served two separate s.5 notices under the Landlord and Tenant Act 1987, offering the tenants a right of first refusal to acquire the freehold. Served in 2020, the first notice concerned Block A, and the second notice concerned Blocks, B, C and E. Block D was exempt. The notices, both in similar form, contained terms relevant to each block and an apportionment of the purchase price. The entirety of the freehold for the estate was not offered.

No acceptance notices were served by the qualifying tenants, and the landlord completed a sale of the entire freehold to the respondent. The tenants argued that the s.5 notices had not been valid, having failed to offer to them the right to acquire the freehold of the whole site.

At first instance, the court found that the notices had complied with s.5 and had dismissed the tenants’ claim. The tenants made two appeals, the second of which was heard in the Court of Appeal.

The decision

The Court of Appeal dismissed the tenants’ appeal, finding that the s.5 notices should relate only to the buildings within which the qualifying tenants were leaseholders, and should not therefore offer the sale of the freehold over the whole site.

The qualifying tenants, acting through their nominee purchaser company, had argued that the landlord’s s.5 notices were invalid, failing to meet the requirement of s.5(3) to state expressly the purchase price and the terms for the purchase of the estate. The Court stated in its judgment that the s.5 notices must be capable of acceptance by qualifying tenants, which can only be the case where the notices refer specifically to the tenants’ own buildings. Under the statutory regime, qualifying tenants are entitled only to the right to acquire the freehold of their own building, and not that of others or a wider estate.

Advice and action for landlords

This decision is welcome guidance on the interpretation and application of s.5, providing reassurance to landlords that they need offer only the right to acquire the freehold of an individual building on an estate to qualifying tenants.

Where landlords seek to dispose of the freehold to an entire site, the statute does not require them to offer the same to qualifying tenants or to supply information relating to the proposed sale.