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If the landlord is selling the freehold interest in the building at auction, it is required to offer the flat owners in the building the right to purchase the freehold interest for the price achieved at auction and this offer is made by way of serving a Section 5B notice.
Do I need to take any action?
If you are not interested in purchasing the freehold interest, no further action is needed.
However, if you would like to purchase the freehold interest, an “Acceptance Notice” will need to be served on the landlord accepting the offer within two months of receiving the Section 5B notice. The Acceptance Notice will reserve the right for the flat owners to take the place of the winning bidder at the auction and acquire the freehold interest in their place.
In the first instance, you should contact the other flat owners in the building to find out who is interested in acquiring the freehold interest. The flat owners will only be able to serve an Acceptance Notice if the majority of those who have received the Section 5B notice are agreeable to proceeding.
The flat owners will also be able to incorporate a company to act as a vehicle for acquiring the freehold interest (known as the “Nominee Purchaser”) and notify the landlord by way of a “Nomination Notice” which is served within 28 days of the Acceptance Notice.
What happens at the auction?
If the freehold interest is sold at auction, the flat owners, having reserved their right by accepting the landlord’s Section 5B notice, have the option to purchase the freehold interest for the same price as the successful bid. Therefore, if the flat owners have reserved their right to acquire the freehold, it is not in their interests to bid at the auction as this will drive the price up.
The landlord will send the contract to the flat owners who must sign and return the same within 28 days of receipt and pay a deposit (which is usually 10% of the successful bid price). The landlord has a further 28 days to formally exchange contracts at which point a completion date will be set.
If, after receipt of the landlord’s contract, the flat owners do not wish to purchase the freehold interest, no further action needs to be taken.
What happens if the freehold interest does not sell at auction?
If the freehold interest does not sell at the auction, the procedure falls away and nothing further can be done. If the landlord wishes to try and sell again, it must start the procedure again.
If the flat owners want to purchase the freehold interest after a no-sale at the auction, the landlord will need to serve new Section 5 notices.
I want to buy the freehold interest but the other flat owners are not interested, can I purchase on my own?
The landlord’s Section 5B notice can only be accepted if a majority of flat owners participate. If there is no majority, the individual flat owners can still attend the auction and bid in the same way as any other member of the public.
If you would like to discuss a section 5 notice that you have received and/or would like to obtain a quote for our fees, please do not hesitate to contact Sajel Patel on sajel@leaselaw.co.uk or 0204 511 9103.
For further information on the Section 5 procedure please click here.
