Part I of the Landlord and Tenant Act 1987 (“the 1987 Act”) gives qualifying residential tenants a right of first refusal where a landlord proposes a relevant disposal of premises containing flats. Ordinarily, the landlord must serve a compliant section 5 offer notice before disposing of the interest. Defective service, incorrect terms or a later sale on materially more favourable terms may amount to non-compliance, exposing the landlord to civil remedies and potential criminal liability.
When the statutory regime applies
Broadly, the premises must comprise the whole or part of a building containing at least two flats, with more than half held by qualifying tenants; the landlord must propose a relevant disposal and no exemption must apply. The building threshold (based on flats) is distinct from the “requisite majority” needed to accept the offer (generally more than half of qualifying tenants, with a tenant holding several flats usually counted once).
A tenant will generally qualify unless a statutory exclusion applies, including certain assured shorthold or business tenancies, employment-related tenancies, specified public-sector/social landlord tenancies, or where the tenant holds three or more flats. The legal tenancy – not simply physical occupation – must be identified.
Relevant disposals may include a freehold sale, assignment of an intermediate lease, grant of certain leases, an auction sale, or grant of an option or right of pre-emption. Exceptions may include certain family gifts, transfers under a will or intestacy, transfers between associated companies, court-ordered disposals, disposals to specified public bodies or qualifying tenants, and qualifying resident-landlord cases. Each exemption is fact-specific and should be checked carefully.
Choose the correct notice and state the true terms
The procedure depends on the proposed transaction: section 5A generally concerns a private contract; section 5B a public auction; section 5C certain other relevant disposals; and section 5D the grant of an option or right of pre-emption. The notice must follow the procedure and timetable applicable to that disposal. If the method changes – for example, from private sale to auction – or the original process is abandoned, fresh compliance may be required.
The notice should identify the disposing owner and the interest offered, with title details and a clear plan where needed. It should accurately state the genuine principal terms, not merely the headline price. Depending on the transaction, these may include the deposit, VAT, completion and payment arrangements, deferred consideration, overage, apportionments, conditions, indemnities, development rights, rights reserved, financial incentives and collateral agreements. Material value should not be shifted into an undisclosed side agreement. A high price alone does not invalidate a notice; the key question is whether the terms genuinely reflect the proposed disposal.
The applicable acceptance period must meet the statutory minimum. For a section 5A private sale it will ordinarily be at least two months; other procedures have different timetables. State a clear deadline and calculate it by reference to the method and date of service. An acceptance must not be burdened with conditions unsupported by the statute, such as requiring a non-refundable deposit or immediate proof of funds.
Identify and serve all qualifying tenants
The landlord should investigate registered leaseholders, unregistered assignments, joint tenants, deceased tenants and personal representatives, corporate tenants, subletting and current correspondence addresses. Service on an occupier may be insufficient if they are not the legal tenant. Individual service is generally required; displaying a notice in communal areas is not ordinarily a substitute. Consider the leases, section 196 of the Law of Property Act 1925 where applicable, and the rules governing service.
Section 5 contains a limited tolerance where notices reach at least 90% of qualifying tenants or, where there are fewer than ten, all but one. This is not a substitute for reasonable steps to identify and serve everyone. All recipients should receive the same material terms and deadline. Inadequate property descriptions, omitted land, unclear VAT treatment, inconsistent notices or terms more onerous than those genuinely intended for a third-party buyer are common sources of challenge.
What tenants should do
Retain the notice, envelope and delivery evidence; record actual and deemed service dates; and compare notices served across the building. Check whether the notice uses the correct section (5A–5D), whether the proposed disposal matches that procedure, and whether the property and all commercial terms are accurately described. Compare the offer against title documents and plans, including any garages, commercial units, gardens, accessways, parking, roof/airspace or development land. Prepare a schedule of flats, legal tenants, qualification, service and willingness to participate to assess the requisite majority.
If tenants wish to buy but dispute validity, a challenge letter does not extend the deadline or prevent disposal. It may therefore be prudent to serve an unequivocal protective acceptance within time, identifying the notice and disposal and demonstrating that the requisite majority participates, while reserving validity arguments separately. Avoid attempting to renegotiate terms in the acceptance, as this may be treated as a counter-offer. Nomination of the acquiring entity is a separate stage and has its own deadline.
Participating tenants should agree funding, contributions, governance, voting, costs, withdrawal/default arrangements and the treatment of non-participants. A failure to maintain the requisite majority or funding can jeopardise the acquisition.
Challenging a notice or an unauthorised disposal
Before disposal, tenants should promptly set out alleged defects in writing, request relevant transaction documents and seek confirmation that no binding disposal will occur before the dispute is resolved. They may seek a declaration in the County Court or High Court. CPR Part 8 may suit a primarily legal dispute with substantially agreed facts; Part 7 may be more appropriate where material factual disputes require evidence. A direct challenge to section 5 notice validity will generally be for the courts, not the First-tier Tribunal.
If exchange, auction or completion is imminent, tenants may need urgent interim injunctive relief; a declaration alone may not prevent the disposal. The court will consider the serious issue to be tried, adequacy of damages, balance of convenience, conduct and delay, and may require a cross-undertaking in damages. Tenants should act promptly and be able to show a genuine intention and realistic ability to exercise the right.
A non-compliant disposal is not automatically void. Where there are reasonable grounds to believe a contravening disposal has occurred, the requisite majority may serve a section 11A information notice on the purchaser seeking details and relevant documents; the purchaser will ordinarily have one month to comply. The tenants may then, where statutory conditions are met, serve a section 12B purchase notice requiring transfer of the acquired interest to their nominee on the original disposal terms. The statutory steps and deadlines must be followed strictly, including any required default notice before enforcement.
There is no single limitation period for every pre-disposal validity challenge, but delay may defeat discretionary relief. A section 12B purchase notice is generally subject to a six-month longstop running from the applicable statutory trigger, commonly compliance with the relevant 1985 Act notification obligations or, if later, compliance with a section 11A notice; verify the trigger from the documents. Potential summary criminal proceedings against a landlord are generally subject to a separate six-month period from the offence, which may occur at exchange if the contract itself constitutes the disposal.
After acceptance and key risks
Following valid acceptance and nomination, the landlord must generally proceed on terms corresponding to the notice, subject to permitted agreement. The landlord cannot use the tenants’ acceptance merely to test the market and then sell to a third party on materially more favourable terms. A lower price, contribution to costs or other material improvement may require a fresh notice. A landlord who disposes without complying may commit a criminal offence, independently of the tenants’ civil remedies.
In practice, landlords should verify the statutory threshold and exemptions, identify the correct tenants, describe the interest precisely, disclose all genuine principal terms, serve correctly and ensure the eventual disposal matches the offer. Tenants should check eligibility, terms, service and majority promptly; preserve their position by accepting within time where appropriate; and seek urgent relief before disposal if necessary. After an unauthorised disposal, attention should turn immediately to sections 11A and 12B and their strict statutory timetable.
