Although tenants are becoming increasingly aware of their rights to collectively buy their freehold, it seems to be a known fact amongst the tenant world that there is an alternative procedure for doing so, when a landlord decides to sell.  Failure by a landlord to provide tenants with the right  of first refusal and follow the procedures in the Landlord and Tenant Act 1987 (“the 1987 Act”) could be detrimental and in some cases, result in a lucky group of tenants picking up a bargain.

The following examines how a disposal may be discovered as well as considering the remedies.

How might a tenant be alerted to a relevant disposal?

Following a disposal of any kind, notice must be given to every tenant to inform them of the disposal, and of the new landlord’s name and address  There are time limits within which this must be done.  Receipt of such notice would evidence a disposal.  Alternatively, a rent or service charge demand that suddenly has different payment details or new name and address details for the landlord would be indicative and should be viewed with caution, particularly if the right of first refusal has not been given.

What happens if the right of first refusal is not given?

Where an ‘illegal’ disposal is discovered, the qualifying tenants can take action against the landlord, or the purchaser – it is their choice.  Any action must be taken within six months of discovery.  Firstly an information notice can be served to ascertain the position and obtain details of the disposal.  If the ‘fishing expedition’ shows that the statutory requirements were not followed, the tenants (provided that there is a majority acting) may acquire the benefit of the contract.  The terms of this are of course non-negotiable but it is not uncommon for tenants in such situations to benefit from transfers made at ‘mates-rates’!

Although the process seems to be nicely mapped out, the 1987 Act was rushed through Parliament and unfortunately, many of the provisions were not properly considered.  Many commentators have said that the 1987 Act raises more questions than it provides answers!  As it is a criminal offence to make a relevant disposal without following the statutory requirements, and a failure to deal properly with evidence of an ‘illegal’ disposal or indeed, an offer received, could result in the freehold being sold without recourse by the tenants, it is imperative that both landlords and tenants seek specialist advice from a professional advising regularly in this technical area of law.

This article can be found in the February 2012 edition of "News on the Block"