What is a Section 5A Notice?

A Section 5A Notice provides qualifying tenants (leaseholders) with their Right of First Refusal offer to purchase the freehold of their building. This particular notice is applicable when freeholders wish to dispose of their freehold interest via a private sale. Private sales can include selling to a specialist freehold buyer or a private individual by way of a contract.

All Section 5 Notices must be prepared and served in accordance with the Landlord and Tenant Act 1987. As such, there are strict rules that must be followed for the Section 5A Notice. Failure to comply can result in a criminal conviction and a fine of up to £5000, so it’s not worth taking chances with these notices if you’re unsure about the procedure and requirements.

Once a Section 5A Notice has been served to qualifying tenants (leaseholders), it is prohibited by law to sell the freehold under different terms within a 12-month period. For example, if the leaseholders do not accept the Right of First Refusal offer, the freehold cannot be sold to another party at a lower price. Furthermore, the landlord’s (freeholder’s) offer is issued on a ‘take it or leave it’ basis, which means that it cannot be challenged and is non-negotiable.

What information does a Section 5A Notice contain?

A Section 5A Notice contains the following basic information:

  • The address of the freehold interest for sale,
  • The freeholder’s contact details
  • The purchase price offered for the freehold
  • Any deposit that must be paid
  • The date by which the offer must be accepted

A statement that the notice constitutes an offer by the landlord to enter into a contract on the terms set out in the notice must also be included. As such, it is crucial that Section 5A Notices are served in the prescribed format as dictated by law to protect both the freeholder and leaseholders.

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Section 5A qualifying for the Right of First Refusal

Section 5 Notices only need to be served when the property for sale and the leaseholders (tenants) qualify for the Right of First Refusal.

For the freehold property to qualify, the following requirements must be met:

1. Must contain at least two flats,
2. More than 50% of the flats must be owned by qualifying tenants
3. No more than 50% of the building must be in non-residential use.

For leaseholders to qualify under Section 5, the following requirements must be met:

1. Must have a lease term of at least 21 years
2. Must not own three or more flats
3. Must not have a short-hold or assured tenancy.

Only if all of the requirements above are met, should Section 5 Notices be served.

Section 5A Notices must be served on at least 90% of the qualifying leaseholders. This legal rule is in place in case some of the leaseholders are untraceable, rather than to provide an opportunity to deliberately omit 10% of qualifying leaseholders.

Check out this infographic to find out if you qualify for the Right of First Refusal

When does a Section 5A Notice expire?

Qualifying leaseholders have two months from the date on the Section 5A Notice to accept the Right of First Refusal offer. In order to accept, the requisite majority (more than 50% of qualifying leaseholders) must serve a notice of acceptance on the freeholder.

If this acceptance notice is served outside of the two-month period, or not served at all, the freeholder can dispose of the freehold on the open market. However, as noted above, this disposal must proceed on the same terms as those stated in the served Section 5A Notice.