What is a section 5 notice?
If you, as the owner of a freehold on a building wish to sell this freehold, you are generally required to offer it, in the first instance, to the leaseholders within that property, before it can be sold to a third party. This is done by sending a Section 5 Notice to the leaseholders, and gives the leaseholders first right of refusal to purchase the freehold.
The section 5 should contain the freeholders contact details, details of what is being sold (freehold, intermediate leasehold interest, area covered, address etc), the price the landlord is willing to accept, and a deadline for the leaseholders to respond.
How long do leaseholders have to accept the Section 5?
A section 5 must be served, giving the leaseholders at least 2 calendar months to respond to formally express their interest in purchasing the freehold.
If the leaseholders (or enough qualifying leaseholders) do not respond, once the 2 months have expired the freehold can be sold on the same terms as stated in the Section 5 notice.
What’s the difference between a Section 5a and Section 5b?
If the owner is looking for a private sale – A Section 5A notice is served. This must give the leaseholders at least 2 calendar months to formally respond (with a Section 6). If no response is received, the owner can continue with a sale to a 3rd party, stating that Section 5 notices have been served, and the leaseholders have not reserved their rights under the legislation.
If the owner is looking to sell at auction – A section 5B notice is served. This informs the leaseholders that the freehold will be sold at auction. This should be issued on the leaseholders between 4 and 6 months prior to the auction, and give the leaseholders at least 2 calendar months to respond.
What happens if the tenants accept the Section 5?
Generally speaking, if the tenants choose to accept, it can be quicker to sell that way than going through auction. However, if you are selling to us, we can move just as quick as the tenants, within the legal timelines. In order to accept the notice, more than 50% of the leaseholders in the building must collectively and formally accept the section 5 notice by serving a section 6 acceptance notice in return.
Section 5a Notice – If the leaseholders accept the notice, they then have a further 2 months to serve the owner a Nomination Notice.
The owner then has 1 month to send a contract for the purchase back to the leaseholders. This must be signed and returned within 2 months, with the deposit for the purchase. At this point, the completion date is agreed and entered into the contract.
Once the contracts have been exchanged, the Transfer Deed will be signed, and the sale moves to completion. On the completion date, the remaining purchase price is due. The vast majority of the exchange in contracts will be handled by the solicitors.
Section 5b Notice – If the leaseholders accept the auction notice, they then have 28 days to serve the owner a Nomination Notice.
At least 28 days prior to the auction sale, the owner must notify the leaseholders of the place and date of the auction.
If the lot does not sell at auction, then the process ends at that point.
However, if the lot does sell, then as the leaseholders accepted the 5b Notice, they have the right to step in, in place of the winning bidder, and purchase at the winning price. Also, the leaseholders may decide the price is too high, and choose not to go forward.
If the leaseholders go ahead with the purchase, the owner then has 7 days to issue the contract of sale. The leaseholders must sign and return this within 28 days of receipt with the deposit. There is then 28 days for a formal exchange of contracts, and the completion of the sale.
The leaseholders will need to instruct their own solicitor to deal with the purchase. They may also be responsible to your costs related to the sale including solitors and any reports that need to be prepared.
Do all leaseholders qualify for a Section 5 Notice?
No. There are certian conditions that have to be met, to qualify for the right of first refusal,
Firstly, the rules for the property are that the property must contain two flats as a minimum, the qualifying leaseholders must own more than 50% of the flats in the property, and the building must have a maximum of 50% that is in non-residential use.
Secondly, the rules for the leaseholders are that their lease term must have had a minimum term of at least 21 years when first issued, the leaseholder must not have a ‘short-hold’ or ‘assured’ tenancy and the leaseholder must not own three or more of the flats.
What else should I know?
Within 12 months of issuing the Section 5, there are various things that can’t be done. For example, you cannot issue a Section 5a with a price, and the sell at a lower price to a 3rd party.
80% of the qualifying leaseholders need to be served with the Section 5 Notice. This allows for absent leaseholders, or those who are untraceable.
How can Ground-Rent.co.uk help me?
We can help by checking and serving Section 5 notices on the appropriate leaseholders within the property. We can assist with tracing leaseholders, and help you through the whole sale process. Furthermore, we can move quickly after the 2 month deadline has passed, and purchase your freehold. Please, contact us today, or complete the form below.
