There are two main types of offer notice relating to proposed sales of the freehold to a building under the 1987 Act.
Under the 1987 Act the landlord must (provided that the disposal is one to which the Act applies) offer the residents of the building the chance to purchase the freehold under the so-called ‘right of first refusal’ under that Act.
If the landlord does not do this he may well commit a criminal offence and there may be other avenues of redress – such as the chance to purchase the freehold on similar terms to the proposed transaction.
What does the fact that I have been served with an ‘Offer Notice’ mean?
Strangely enough, your landlord wants to sell the freehold to your building. It may be that there is a potential buyer lined up or that he is proposing to sell at auction or simply that because he wants to sell and because the legislation applies and a notice has been served to see whether the flat owners will ‘bite’ and purchase the freehold.
There are 2 main types of notice encountered in practice: – Section 5A and Section 5B. These are mentioned briefly below:
Section 5A
This is a ‘fixed price’ ‘take it or leave it’ offer. You cannot challenge the price in the notice. If you do want to purchase, but not at that the stated price consider the 1993 Act as an alternative.
The offer notice should state the key terms of the disposal and will stipulate a date – at least 2 months away – by which the qualifying tenants (basically long leaseholders but other tenancies also qualify for 1987 Act rights, so if in any doubt check) must serve an acceptance notice.
More than 50% (a majority) of the qualifying tenants are needed to serve the acceptance notice.
There are then other steps that must be taken (serving a nomination notice within a further 2 months and proceeding to exchange contracts within 2 months of receipt of the contract following nomination). You will need professional help to serve the relevant notices and proceed with the purchase.
You should also consider as a preliminary step getting some valuation advice to work out whether the proposed price is reasonable or not.
Section 5B
A section 5B notice tells you that the freehold is going to be sold at action. The notice will either state the date of the auction, or (provided that he complies with the relevant time limits) the landlord can serve a further notice closer to the auction date notifying you of the date and time of the auction.
Provided that the correct notices are served the flat owners will achieve a ‘right of first refusal’ against any successful bidder at the auction. They will then have 28 days to complete the contract in the same way that any eventual buyer would following an auction purchase.
Once again this is a collective right that must be exercised by a majority (more than 50%) of the qualifying tenants.
In the case of a 5B notice acceptance and nomination notices must also be served together with notice of election. Likewise you will need professional help to achieve success in purchasing the freehold under this route.
Once again valuation advice early on is recommended as is considering carefully the tactics as to whether to attend the auction or to attempt to make a bid before the sale takes place.
If I want to accept one of these notices, what should I do?
As mentioned above, these are collective rights open to a majority and so you will need more than 50% of the qualifying flat owners. The rules on what makes a qualifying building and identifying a qualifying tenant can be complex in certain cases and advice may be required.
Secondly, assuming that there are sufficient flat owners to proceed, they need to consider funding / valuation – i.e. is the process affordable and is the price that is proposed reasonable? In the case of an auction sale, a sense of the likely sale price will also be essential to work out not only whether the price is right but also whether there will sufficient participating flat owners with funds to complete in the relatively short time frame if the purchase proceeds.
Thirdly, if no acceptance notice is served and the freehold is not sold to someone else there is nothing to stop one or more of the flat owners buying the freehold provided that the relevant offer period has expired without acceptance, or if the process has been started but then abandoned by the majority.