Everything you need to know about Section 5 notices

Surveyor, leasehold specialist, and founder of Horton Valuers, Colin Horton looks at leasehold tenants and their rights under Section 5 notices.

Related topics:  Landlords,  tenants,  leasehold,  section 5
Property | Reporter
15th September 2023
advice

Section 5 notices are designed to make things fairer for tenants of leasehold flats or apartments, should the freehold landlord sell. Understanding what a Section 5 notice is and how it potentially affects you as a leasehold tenant is critical. We're here to help you understand everything you need to know about this matter.

What is a Section 5 notice?

If you are the leaseholder of a property inside a freehold building that the landlord wants to sell, the

landlord is generally required to offer the existing tenants first refusal before selling on the open market. It is then up to the tenants to collectively decide whether they want to purchase freehold rights over their properties or continue with their current leasehold arrangements.

A Section 5 notice is a document informing existing leaseholders of their right to first refusal to buy the freehold. The quoted price represents fair value for the landlord, based on the number of years of the remaining lease for each property in the building. If the current property owners decide to push ahead and purchase freehold rights, they will collectively assume control and management of

the building, replacing the function of the landlord. Once they obtain freehold rights, they no longer need to apply for lease extensions.

When should tenants receive a Section 5 notice?

Tenants should receive a Section 5 notice whenever a landlord intends to sell the freehold on the property. In the UK, it is a criminal offence for freeholders to sell a property without first serving a Section 5 notice to freeholders. Landlords who fail to comply may put themselves at risk of legal proceedings.

How long does a Section 5 notice last?

Landlords must provide tenants with a legally valid Section 5 notice at least four months before the intended action dates. Tenants must respond to the notice within two months if they wish to reserve the right to purchase the property’s freehold.

Can landlords withdraw Section 5 notices?

Under current rules, landlords cannot withdraw Section 5 notices. They are also forbidden from varying the terms, once served, prior to acceptance.

Does buying the freehold increase the value of the leasehold property?

The increase in the value of the leasehold property is usually quite small when purchasing the freehold. However, if the remaining time on the lease is short, then purchasing the freehold may add to its value significantly.

What are the requirements to serve a Section 5 notice?

Freehold properties must meet the following requirements to serve valid Section 5 notices:

1. Non-residential use must not occupy more than half of the property.

2. More than half of the property must be owned by qualifying leasehold tenants.

3. The building must contain at least two separate dwellings.

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