What is a Section 5B Notice? A Section 5B Notice provides leaseholders with their legal Right of First Refusal offer to purchase the freehold of their building. This particular notice is applicable and legally required when freeholders wish to dispose of their freehold interest via public auction. 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 5B 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 5B Notice has been served on the 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 disposal must continue via an auction rather than a private sale. Similarly, if the freeholder wishes to withdraw the freehold interest from the auction, or it does not sell, the sale must cease to continue unless a new Section 5 Notice is served. This is the case regardless of whether another sale is attempted at auction.
Qualifying for the Right of First Refusal Section 5B Notices only need to be served when the freehold interest for sale and the leaseholders qualify for the Right of First Refusal. The freehold must contain at least two flats, more than 50% of the flats must be owned by qualifying leaseholders and no more than 50% of the building must be in non-residential use.
The leaseholder must have a lease term of at least 21 years, must not own three or more flats, must not have a short-hold or assured tenancy. The notices must be served on at least 90% of the qualifying tenants (leaseholders). This 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 5B Notice expire? Qualifying tenants (leaseholders) have two months from the date of the Section 5B Notice to accept the Right of First Refusal offer. This initial period must be at least two months before the date of the auction. Furthermore, the leaseholders must be given another 28 days to nominate a purchaser, and this period must end at least 28 days before the date of the auction.
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, not served at all or if the leaseholders withdraw, the freeholder can dispose of the freehold at a public auction. However, as noted above, this disposal must proceed on the same terms as those stated in the served Section 5B Notice.
Information from www.freehold-sale.co.uk