As we have covered previously, if you own a reversionary interest in a building where 50% or more of the internal floor area is residential, the Landlord and Tenant Act 1987 will apply, and if you are unable to avoid its implications in the ways suggested in our previous tip, you will not lawfully be able to sell the building without first observing the residential tenants' right of first refusal. You will need to serve notices on all 'qualifying tenants' offering to sell them the building on specific terms (these are called "Section 5 Notices").

The legislation is fraught with potential pitfalls and it is essential that the Section 5 Notices are correctly drafted to avoid delays to your proposed sale. Some points to consider include:

  1. What premises are being offered to the tenants? Just the building they occupy, or an entire estate? Are there commercial premises as well?
  2. Who should the notices be served on? This depends on who the 'qualifying tenants' are. If there are ten or more then the Section 5 Notice must be served on at least 90% of them.
  3. The contents of the notice – it must include details of the purchase price, any deposit and a deadline for responses (allowing at least two months).
  4. Will the sale be by contract, auction or in the form of an option? Different rules apply.

Failure to comply with this legislation can result in a landlord being liable to both criminal prosecution and civil action.