The Landlord and Tenant Act 1987 ("the Act") grants residential tenants (if they are qualifying tenants) a right of first refusal if a landlord proposes to sell the property.
A landlord is not able to sell the property or undertake other transactions without first serving a notice on all qualifying tenants, giving them the right to buy the property or enter into the transaction before it can occur with a third party.
If the qualifying tenants receive notices from the landlord and then fail to exercise their rights within a specified period, the landlord can complete the transaction on the same terms as were specified in the notices given to the tenants.
What are the consequences of failing to comply with the Act?
It is a criminal offence under Section 10a of the Act if a landlord fails to comply, and a landlord can be guilty of a criminal offence if, without reasonable excuse, it makes a relevant disposal without complying and serving Section 5 Notices. Property that is disposed of in breach of the Act can also fall within the definition of criminal property under the Proceeds of Crime Act 2002, which could have further implications for the landlord, a buyer or their advisers if things go wrong.
It is rare for cases involving a consideration Section 5 Notice to come before the courts, but the consequences of failing to comply were considered in the case of S Franses Ltd and Another -v- Block 6 Ashley Gardens Roof Gardens Ltd in 2023.
The facts in the case were that the landlord had granted roof space leases in 2012 without first serving Section 5 Notices. After realising that the leases had been granted, the tenants claimed that they had been granted unlawfully because they had not been offered the chance to purchase the roof space themselves. They then served default notices on the landlord, requiring them to make good the failure to serve a Section 5 Notice within a specified time and a notice on the purchasers requiring them to transfer the interest back to the qualifying tenants.
The court had to consider the validity of the notices served by the qualifying tenants. In the first instance, the tenants were successful, and it was held that the court had the discretion to make an order requiring the purchasers to transfer the space back to the tenants.
The matter was appealed and then considered by the High Court and they found, once again, that the notices were valid and dismissed the appeal. A technical issue had been raised about whether or not the default notices had to be in a prescribed form, and the High Court found that they did not need to be. It was enough that the notice had referred to the relevant section of the Act and made clear that the purchasers were required to make good on their default.
This is a poignant reminder of the dangers of failing to serve Section 5 Notices.
If you own a mixed-use building and are thinking of disposing of it or part of it, you should always seek legal advice.
