Right of First Refusal

The rights created by the Landlord and Tenant Act 1987 include the well known but easily overlooked right of first refusal. It is less well known that it gives the Tribunal the ability to make variations to leases. Landlords are required to give flat owners the right of first refusal in respect of certain disposals and to then bring the existence of flat owners’ rights to their attention once the disposal has been made.

Where landlords fail to offer the right of first refusal before making a disposal, e.g. the freehold to a block of flats, then the flat owners may be able to force the recipient of that property interest to transfer it to them on the same terms.

Landlords need to be careful not to fall into this trap for the unwary and prospective buyers of reversionary interests must explore whether a prior disposal is prone to challenge.

Landlords could be exposed to significant loss; they may make a disposal on favourable terms which the flat owners can then take advantage of. Worse, flat owners may be able to take up this right many years after a disposal is made in breach of these requirements, and so take the benefit of any uplift in values since the date of the original disposal.