Section 5 Notices & Ground Rents

Section 5A Notices

Read the original Leasehold Advisory Service article here

Where the landlord intends to sell on the open market

If the qualifying tenants are expecting the offer, or are well organised they can inform the landlord of their nominated person at any time following their acceptance of the offer; they do not need to delay matters until the second two month period at 1(iv) above.

If the qualifying tenants do not notify the landlord of their nominated person within the required period, the landlord is free to dispose of the interest on the open market, but not on different terms or at a price lower than that proposed to those tenants in the Offer Notice.

  1. Where the landlord intends to dispose on the open market, the notice must include the following:
    1. the terms of the proposed disposal, that is the property and the interest being disposed of (the freehold, a headlease etc), the price and any deposit required;
    2. a statement that the notice constitutes an offer by the landlord to enter into a contract on the terms set out in the notice;
    3. the date by which the offer may be accepted (the initial period) - this must not be less than two months from the date of the notice; and
    4. a date for the nomination by the tenants of a purchaser (the nominated person), which must not be less than a further two months.
  2. If the qualifying tenants wish to take up the offer, the requisite majority must write to accept. That majority is more than 50% of the qualifying tenants (counting one vote per flat). Those tenants must serve a notice accepting the landlord's offer within the period set out in the landlord's notice (unless he later agrees a longer period).
    If the qualifying tenants do not serve the acceptance notice, or serve it outside the offer period, the landlord is free to dispose of the interest on the open market, but not on different terms or at a price lower than that proposed to the tenants in the Offer Notice.
  3. Where the qualifying tenants accept the offer they then have a further period of at least two months in which to notify the landlord of their nominated person. This is the person, or group, or company which the qualifying tenants wish to acquire the interest on offer. (There is a note on organising the nominated person and formation of a company in
  4. Once the landlord has been notified of the nominated person, the nominated person must be sent a contract within one month of the notification.
  5. The nominated person then has a period of two months to sign and return the contract and to pay the deposit (this must not be more than 10% of the price).
  6. The landlord has seven days from receipt of the signed contract to exchange.

 

Although the procedures are simple and provide very generous time frames for the tenants, there are certain limitations which must be considered:

  1. the price in the Offer Notice - this is the price set by the landlord and is not negotiable (unless the landlord is prepared to do so) nor is it challengeable at a Leasehold Valuation Tribunal. It is a 'take it or leave it' offer, based by the landlord on what he reasonably expects he could achieve in an open market sale. The protection for the tenants is the prohibition on sales within 12 months on different terms or at a lower price - this should discourage the landlord from setting an artificially high price to the tenants.
  2. the requisite majority - the necessary majority of qualifying tenants must be maintained throughout the process; should it drop below the required number the nominated person must so advise the landlord and the tenants must withdraw. The landlord is then free to sell (but still not at a lower price or on better terms within 12 months).
  3. either party may withdraw - the landlord may withdraw the offer and the nominated person may withdraw his intention to proceed with the acquisition at any time up to exchange of contracts; neither is bound to proceed.
  4. either party may be deemed to have withdrawn - if the landlord does not send or exchange contracts (steps 4 and 6 above), or if the nominated person does not return the signed contract (step 5 above) the party is deemed to have withdrawn. In this case the landlord may dispose of his interest during the 12 months following withdrawal but subject to conditions.
  5. the cost of withdrawal or deemed withdrawal - if a notice of withdrawal is served after the first four weeks of the nomination period specified in the Offer Notice, or if a party is deemed to have withdrawn after this period, the withdrawing party will be liable for the other side's costs. Withdrawal within the first four weeks means that there is no liability for costs.