You are the freeholder, intermediate leaseholder, or leaseholder of a flat, and need valuation advice for the Right of First Refusal under the Landlord and Tenant Act 1987.
Valuations – Right of First Refusal. Requirement.
Under the Landlord and Tenant Act 1987, where the immediate landlord of Qualifying Tenants wishes to sell their interest in a building that qualifies for the Right of First Refusal, they must first provide Notice offering to sell the Qualifying Tenants the interest on the same terms as the Landlord proposes disposing of it.
Valuations – Right of First Refusal. The qualifying criteria.
To qualify, the premises must comprise the whole or part of a building, with at least 50% of the internal floor area used for residential purposes, and flats held by Qualifying Tenants must be two or more and more than half of the flats in the building.
Where there is an intermediate landlord, the underlessees will not have a Right of First Refusal triggered in the event of a sale of the freehold.
The Qualifying Tenants are those holding any residential tenancy apart from:
- Protected Shorthold Tenancies under s52 of the Housing Act 1980;
- A Tenancy under Part II of The Landlord and Tenant Act 1954 (business tenancy);
- A tenancy terminable on the cessation of the tenant’s employment;
- An Assured Tenancy or Assured Agricultural Occupancy under Part I of the Housing Act 1988; or
- A tenant of at least three flats in the building including where these flats are held by associated companies.
Valuation for the Right of First Refusal. Notice.
The Offer Notice must be in a prescribed form, and contain differing information, dependant on the basis of sale (ie by private treaty or auction).
The period during which the Qualifying Tenants may accept the offer is not to be less than two months from the date of the Notice.
There are other prescribed procedural steps and timescales.
Valuation for the Right of First Refusal. Are there sufficient participants?
In addition to the requirement for the building to qualify, the participants must be not less than the lessees of half of the Qualifying Tenants.
Valuation for the Right of First Refusal? Do the participants have sufficient funds to finance the purchase?
Some of the participants might decide to borrow funds from a bank or building society. It is possible for the participants to acquire the interests of the non-participants, or invite a “White Knight” purchaser to do so, in both cases, in return for receipt of ground rent, premiums from future lease extensions, or a share of them if the Qualifying Lessees’ immediate Landlord has an intermediate lease and possibly other income from the non-participants, or otherwise.
Valuation for the Right of First Refusal. If the participants purchase the block, what are they entitled to acquire?
If the building qualifies, and there are sufficient participants to qualify for the Right of First Refusal, the participants, through their nominee, are entitled to acquire the interests of their Landlord, subject to the various flat leases. They might become responsible for the management of the building and service charge. The participats will replace the existing Landlord, and will be able to grant themselves leases of terms that expire the day before expiry of the intermediate lease if the Landlord is an intermediate leaseholder, or of any duration if the Landlord is the freeholder. The purchaser of the non-participants, which might be the nominee of the participants, or a “White Knight” purchaser, will be entitled to receive from the non-participants, ground rent, premium receipts from future lease extensions, or a share of them if the Landlord is an intermediate leaseholder, and possibly other income from them or otherwise.
Valuation for the Right of First Refusal. Process to calculate Market Value.
We are able to report on whether the price at which the Right of First Refusal has been offered, is the Market Value.
In order to calculate the Market Value, we as Chartered Surveyors, Regulated by RICS, with Registered Valuers that are experts in Right of First Refusal, lease extensions and enfranchisement can:
- inspect the flats, and any other property included in the interest being sold;
- calculate the floor areas;
- research the market; and
- report on the Market Value of the interest of the Landlord that has served the Notice of Right of First Refusal.
We take account of rental income, the value of the reversions, development potential, other income, “Hope Value” for the possibility of future premium receipts, and any other factors that impact on Market Value. We also have regard to the terms of the leases, deeds of variation, and licences for alterations etc. We advise on whether the price stated in the Notice offering the Right of First Refusal is a Market Value, and on strategy after receipt of the Notice and after us having reported.
Valuation for Right of First Refusal. Examples of recent work.
We have recently:
Right of First Refusal: Reported on whether the price stated in the Notice of Right of First Refusal is the Market Value, and on the potential advantages and problems likely to arise if the interest is acquired.
Right of First Refusal or Enfranchisement: Reported on whether the lessees should acquire their block by means of enfranchisement, or wait for receipt of an anticipated Notice of Right of First Refusal.
Our services: We are able to advise on the Market Value of a property interest, where a Notice has been received of the Right to First Refusal under the Landlord and Tenant Act 1987. We are Chartered Surveyors, Regulated by RICS, with Registered Valuers that are experts in Right of First Refusal, lease extensions and enfranchisement. We are also able to provide further information in relation to Valuations – Right of First Refusal.
