The right of first refusal: when a freeholder must offer the freehold to leaseholders first

In England and Wales, the leasehold right of first refusal is the Landlord and Tenant Act 1987 Part I rule that can force a freeholder to offer a qualifying disposal to leaseholders before selling to someone else. The 1987 Act does not create the same right in Scotland or Northern Ireland, because “This Act extends to England and Wales only.”

What is the right of first refusal, and when must a freeholder offer you the freehold?

The right of first refusal means that, in England and Wales, a landlord proposing a relevant disposal of qualifying flat premises must first serve an offer notice on the qualifying tenants before selling the freehold or another protected interest. Section 5 says: “Where the landlord proposes to make a relevant disposal affecting premises to which this Part applies, he shall serve a notice under this section (an ‘offer notice’) on the qualifying tenants of the flats contained in the premises (the ‘constituent flats’).” The right is not limited to a simple freehold sale: the trigger is a relevant disposal of the landlord’s estate or interest. The building must meet the qualifying-premises test, including at least two flats held by qualifying tenants and more than 50% of all flats being held by such tenants. For a private-treaty sale, the Section 5A offer must stay open for at least two months from service: “The notice must specify a period within which that offer may be so accepted, being a period of not less than two months which is to begin with the date of service of the notice.” No statute fixes the price; LEASE says, “The landlord can set the price and terms as they like.”

What is the difference between an option and a right of first refusal?

An option lets the buyer force a sale if its terms are met, while a right of first refusal, or pre-emption right, only becomes exercisable if the owner chooses to sell. The High Court put the distinction this way: “The distinguishing feature of the grant of a right of pre-emption, as distinct from the grant of an option, seems to me that the former, but not the latter, is entirely dependent upon the volition of the grantor in a way that the latter is not.” For leasehold right of first refusal purposes, that distinction does not stop the Landlord and Tenant Act 1987 treating both as disposals that can need an offer notice: Section 5C says, “The following requirements must be met in relation to an offer notice where the disposal consists of the grant of an option or right of pre-emption.” For registered land, a modern pre-emption right is not merely informal: section 115 of the Land Registration Act 2002 says, “A right of pre-emption in relation to registered land has effect from the time of creation as an interest capable of binding successors in title.”

Which buildings and landlords are exempt from the right of first refusal?

The main right of first refusal exemptions in England and Wales are buildings outside the qualifying-premises test, buildings with more than 50% non-residential internal floor area, and cases where the landlord is an exempt landlord or a qualifying resident landlord. Section 1 states the landlord exemption directly: “This Part also does not apply to any such premises at a time when the interest of the landlord in the premises is held by an exempt landlord or a resident landlord.” The mixed-use test is not a simple flats-above-shop ban; the Act excludes premises only where “the internal floor area of that part or those parts (taken together) exceeds 50 per cent. of the internal floor area of the premises (taken as a whole).” A resident landlord exemption is narrower than many summaries suggest, because section 58 requires that “the premises are not, and do not form part of, a purpose-built block of flats.” Corporate restructuring can also fall outside the right: section 4 excludes “a disposal by a body corporate to a company which has been an associated company of that body for at least two years.”

What is a Section 5 notice, and what must it say?

A Section 5 notice is the statutory offer notice a landlord must serve on qualifying tenants in England and Wales before making a relevant disposal covered by the Landlord and Tenant Act 1987. Section 5 says the landlord “shall serve a notice under this section (an ‘offer notice’) on the qualifying tenants of the flats contained in the premises,” and the contents depend on whether the disposal is by contract, auction, option or pre-emption, or another route: “An offer notice must comply with the requirements of whichever is applicable of the following sections—”. For an ordinary contract sale, section 5A requires the notice to say it is an offer the requisite majority may accept: “The notice must state that the notice constitutes an offer by the landlord to enter into a contract on those terms which may be accepted by the requisite majority of qualifying tenants of the constituent flats.” It must include the principal terms, including “the deposit and consideration required,” give at least two months to accept, and give at least a further two months to nominate a purchaser. The requisite majority is not half the leaseholders or a rounded 51% rule: section 18A means “qualifying tenants of constituent flats with more than 50 per cent. of the available votes.”

Should you buy the freehold when your freeholder serves a Section 5 notice?

You should consider accepting a Section 5 notice if the price is commercially sensible, because the right of first refusal gives leaseholders a chance to buy on the landlord’s terms but does not give them a tribunal valuation or a statutory haggling process. LEASE says, “The landlord can set the price and terms as they like,” and SO Legal states the practical consequence: “The right of first refusal does not include a statutory mechanism for negotiating the price or other sale terms.” If a Section 5B auction notice has been served and the flat has only 86 years left, the decision is usually less about whether the right exists and more about price, organisation and lease length: buying the freehold may let participating flat owners control future lease extensions, ground rent and management, while selling the flat avoids the cost and coordination risk. Allsop’s auction data suggests nomination can materially change price and bidding: nominated-purchaser lots averaged 12.6 years’ purchase, 46% lower than unencumbered lots, and “68% of our investors simply wouldn’t bid.”

If leaseholders turn the freehold down, can the freeholder sell it to someone else?

Shelter and LEASE both say a freeholder reselling within 12 months of a decline must match “the same terms.” Wrong — s.7 only bars a lower price or deposit; a higher-price sale to anyone is lawful, no re-offer needed. LEASE also mistimes the 12-month clock from the notice date; it actually runs from the end of the acceptance/nomination period. Section 7 says that, if there is no valid acceptance or no nominated purchaser, “the landlord may, during the period of 12 months beginning with the end of that period, dispose of the protected interest to such person as he thinks fit, but subject to the following restrictions.” For a non-auction sale, the key price restriction is “that the deposit and consideration required are not less than those specified in the offer notice,” so the statutory bar is a cheaper sale, not every sale on altered terms. If the landlord bypasses the process altogether, the sale is not automatically void, but tenants may have a purchase-notice remedy against the buyer: section 12B lets the requisite majority require the purchaser to sell the interest “on the terms on which it was made.”

What is section 27 of the Landlord and Tenant Act 1987?

Section 27 is not the right of first refusal: it is in Part III of the Landlord and Tenant Act 1987 and deals with the preliminary notice before leaseholders seek an acquisition order against a mismanaging landlord. Section 27 says: “Before an application for an acquisition order is made in respect of any premises to which this Part applies, a notice under this section must (subject to subsection (3)) be served on the landlord by qualifying tenants of the flats contained in the premises who, at the date when it is served, constitute the requisite majority of such tenants.” For Part III, the majority is not the Part I right-of-first-refusal majority: the 1993 Act substituted “not less than two-thirds” for the original more-than-50% test. The claim goes to the county court, not the First-tier Tribunal, except for specific tribunal questions such as price; section 52 says, “The county court shall have jurisdiction to hear and determine any question arising under any provision to which this section applies.” The notice is not a fixed-form Section 5 notice and no fixed number of days is prescribed for the landlord’s remedy period; section 27 refers to “such reasonable period as is specified in the notice.”

Last reviewed September 2026.

Sources

• Landlord and Tenant Act 1987 s.62 — “This Act extends to England and Wales only.” Source
• Landlord and Tenant Act 1987 s.5 — “Where the landlord proposes to make a relevant disposal affecting premises to which this Part applies, he shall serve a notice under this section (an ‘offer notice’) on the qualifying tenants of the flats contained in the premises (the ‘constituent flats’).” Source
• Landlord and Tenant Act 1987 s.5A — “The notice must specify a period within which that offer may be so accepted, being a period of not less than two months which is to begin with the date of service of the notice.” Source
• LEASE, Right of First Refusal — “The landlord can set the price and terms as they like.” Source
• High Court, Dawson v Bell [2012] EWHC 1213 (Ch) — “The distinguishing feature of the grant of a right of pre-emption, as distinct from the grant of an option, seems to me that the former, but not the latter, is entirely dependent upon the volition of the grantor in a way that the latter is not.” Source
• Landlord and Tenant Act 1987 s.5C — “The following requirements must be met in relation to an offer notice where the disposal consists of the grant of an option or right of pre-emption.” Source
• Land Registration Act 2002 s.115 — “A right of pre-emption in relation to registered land has effect from the time of creation as an interest capable of binding successors in title (subject to the rules about the effect of dispositions on priority).” Source
• Landlord and Tenant Act 1987 s.1 — “This Part also does not apply to any such premises at a time when the interest of the landlord in the premises is held by an exempt landlord or a resident landlord.” Source
• Landlord and Tenant Act 1987 s.1 — “the internal floor area of that part or those parts (taken together) exceeds 50 per cent. of the internal floor area of the premises (taken as a whole).” Source
• Landlord and Tenant Act 1987 s.58 — “the premises are not, and do not form part of, a purpose-built block of flats.” Source
• Landlord and Tenant Act 1987 s.4 — “a disposal by a body corporate to a company which has been an associated company of that body for at least two years.” Source
• Landlord and Tenant Act 1987 s.5 — “An offer notice must comply with the requirements of whichever is applicable of the following sections—” Source
• Landlord and Tenant Act 1987 s.5A — “The notice must state that the notice constitutes an offer by the landlord to enter into a contract on those terms which may be accepted by the requisite majority of qualifying tenants of the constituent flats.” Source
• Landlord and Tenant Act 1987 s.5A — “the principal terms of the contract (including the deposit and consideration required).” Source
• Landlord and Tenant Act 1987 s.18A — “In this Part ‘the requisite majority of qualifying tenants of the constituent flats’ means qualifying tenants of constituent flats with more than 50 per cent. of the available votes.” Source
• SO Legal, Section 5 notice guide — “The right of first refusal does not include a statutory mechanism for negotiating the price or other sale terms.” Source
• Allsop, ground rents and Section 5B auctions — “For affected sales (33%) it was 12.6 – a reduction of 46%.” Source
• Allsop, ground rents and Section 5B auctions — “68% of our investors simply wouldn’t bid.” Source
• Landlord and Tenant Act 1987 s.7 — “the landlord may, during the period of 12 months beginning with the end of that period, dispose of the protected interest to such person as he thinks fit, but subject to the following restrictions.” Source
• Landlord and Tenant Act 1987 s.7 — “that the deposit and consideration required are not less than those specified in the offer notice.” Source
• Landlord and Tenant Act 1987 s.12B — “on the terms on which it was made.” Source
• Landlord and Tenant Act 1987 s.27 — “Before an application for an acquisition order is made in respect of any premises to which this Part applies, a notice under this section must (subject to subsection (3)) be served on the landlord by qualifying tenants of the flats contained in the premises who, at the date when it is served, constitute the requisite majority of such tenants.” Source
• Leasehold Reform, Housing and Urban Development Act 1993 s.85 — “In section 27(4) (meaning of requisite majority in relation to qualifying tenants), for ‘more than 50 per cent.’ there shall be substituted ‘ not less than two-thirds ’.” Source
• Landlord and Tenant Act 1987 s.52 — “The county court shall have jurisdiction to hear and determine any question arising under any provision to which this section applies.” Source
• Landlord and Tenant Act 1987 s.27 — “such reasonable period as is specified in the notice.” Source