The Section 5 Notice

The right of first refusal to buy the Long Leasehold on Hebble Wharf

Where a landlord is proposing to sell his interest in a building containing multiple flats or apartments he must, by law, first offer it to the tenants before offering it on the open market. He must serve formal notices on the tenants telling them what he is intending
click on the image to download a copyand must provide time for them to consider the offer; he cannot sell to another party during that time, nor offer the interest to anyone else at a price less than that proposed to the tenants or on different terms.

Breach of these legal obligations by the landlord is a criminal offence. If the landlord sells without providing the Right of First Refusal, the tenants can serve a notice on the new owner demanding details of the transaction, including the price paid; they can then take action to force the new owner to sell to them at the price he paid.

Guidance for tenants on the Right of First Refusal has been issued by the Leaseholder Advisory Service. A copy of that guidance can be downloaded here.

The Section 5A Notice

On 22 December, 2016 the landlord of Hebble Wharf, Waterfront Wakefield (Hebble Wharf) Ltd, issued a notice under Section 5A of the Landlord & Tenant Act 1987 through their agents, Freehold Investment Ltd.  Section 5A of the Act relates to the proposed sale of a property interest on the open market (not by auction).

Hebble Wharf was developed by CTP Saint James Ltd – a joint venture between St James Securities of Leeds and CTP of Manchester – and, after the joint venture was dissolved in 2011, ownership of Hebble Wharf passed to a CTP subsidiary, CTP (Wakefield) Ltd – now part of U and I Group plc.

On completion of Hebble Wharf in 2008, the long leasehold (or head leasehold) was transferred to Waterfront Wakefield (Hebble Wharf) Limited, also part of U and I Group plc.  This 998 year lease covers all 58 apartments, the associated basement car parking spaces and the ground floor restaurant area, and it is this long leasehold which is now being offered for sale.

The individual subleases (mostly 250 year leases) on the 58 apartments and restaurant unit are unaffected, but sale of the long leasehold means that the service charges payable by individual leaseholders could increase if the new long leaseholder (as often happens) chooses to change the arrangements for building insurance and maintenance.

What happens now

27 out of a potential 44 qualifying leaseholders have now indicated their support for accepting the offer to purchase, and we have agreed that we shall, by the required deadline (February 21) submit a formal notice of acceptance of the offer to the landlord’s agent, Freehold Investment Ltd.

This acceptance triggers a further period of two months during which time we will take legal advice to establish the precise detail of the Section 5 offer, as well as the expected level of income that would derive from ground rents.  At the same time, of course, we will be considering how the necessary finance will be raised and the framework for establishing an appropriate non-profit company (of which qualifying leaseholders would be directors and/or shareholders) to progress the purchase.

That company must be incorporated  and notice then served on the landlord by April 21 that the company is ready to proceed with the purchase of the long leasehold. Exchange of contracts would take place one month later (by May 21) at which point a 10% deposit would be payable, with the balance on completion.

It is important to remember though that, having served notice of acceptance on February 21, we still have a period of one month (to March 21) before we become liable for any costs incurred by the other party. Once we get beyond March 21, if we subsequently decide not to proceed, then we would become liable for legal costs incurred by the landlord and by their agents. To avoid that situation, we believe it is vital that we obtain legal advice now.

We have informed the landlord and their agent that we believe we have the requisite majority to be able to proceed, and have submitted a series of questions that have been raised in our discussions to date. Judging from past experience, there is no certainty that we will secure answers to all of these questions before February 21, so it is in everyone’s interest that we engage legal advisors now to pursue enquiries on our behalf.

Legal fees will, of course, form part of the total amount that will need to be raised if the purchase goes ahead, but we will clearly need legal advice on a number of matters before that commitment to purchase can be made. If, as a result of that advice, the decision is made not to proceed, then we will still need to pay for that advice. In those circumstances the cost of legal advice will be shared equally between the qualifying leaseholders.

For the record

In order to ensure we have the required information to go forward with acceptance of the Section 5A Offer, please follow this link to our Leaseholder Information page and complete the short form on that page.

This information will not be made public, but will be used to ensure we have the relevant contact details for you, and that we have your agreement to a share of any legal expenses that may be unavoidably incurred should the purchase of the long leasehold not proceed.