Right of first refusal explained

The right of first refusal is a statutory protection that gives qualifying leaseholders the opportunity to purchase the freehold or superior lease of their building before it is sold to a third party. It applies in specific circumstances and follows a tightly defined legal process, which can catch both leaseholders and landlords off guard.

Although the right of first refusal has existed for many years, it is frequently misunderstood in practice. Leaseholders are often unclear about when it applies, what action is required, or how it differs from other leasehold rights such as collective enfranchisement. Having a clear grasp of the basics is essential before decisions are made or deadlines are missed.

What is the right of first refusal?

The right of first refusal arises when a landlord proposes to dispose of a qualifying interest in a building containing flats. Where it applies, the landlord must first offer that interest to the qualifying leaseholders on the same terms as the proposed third-party sale.

The right does not give leaseholders the ability to block a sale outright. Instead, it gives them the opportunity to step into the purchaser’s position if they act collectively, within the statutory time limits, and in accordance with the required procedure.

When does the right of first refusal apply?

The right of first refusal does not apply to every building or every disposal. Whether it arises depends on a combination of factors, including the building's structure and use, the status of the leaseholders, and the nature of the proposed transaction.

In practice, the right is most often misunderstood or overlooked in situations such as:

• Buildings with a mix of residential and commercial use.
• Assumptions that a statutory exemption applies without proper analysis.
• Informal discussions or agreements taking place before a formal notice is served.

These are also the situations where problems tend to surface later, often once a transaction is already underway.

What triggers the process?

The process is triggered when the landlord proposes to sell the freehold (whole or part of it) or superior lease and serves a formal notice on the qualifying leaseholders. This notice is commonly referred to as a section 5 notice.

The notice sets out the proposed sale terms (or details of a planned auction) and starts a statutory timetable. From that point on, leaseholders must decide whether to accept the offer and, if they wish to proceed, take steps to act together.

What rights do leaseholders have in practice?

The right of first refusal gives leaseholders the opportunity to buy on the same terms as a third party. It does not include a statutory right to negotiate the price or other terms offered.

In practice, leaseholders are often surprised by how rigid the process can be. Key features of the right of first refusal include:

• No statutory mechanism for negotiating price or terms.
• Strict deadlines that cannot be extended by agreement.
• The need for collective coordination within a short timeframe.
• The risk that doing nothing allows the sale to proceed.

If the landlord does agree to change the proposed terms, a new notice will usually need to be served, restarting the process.

What are the key time limits?

Time limits under the right of first refusal are fixed by statute and leave little room for flexibility. In most cases, leaseholders have two months from service of the notice to accept the offer.

Further deadlines apply if the offer is accepted, including steps related to the nomination of a purchaser and the progression of the transaction. Missing a deadline can mean losing the right entirely, even when leaseholders would otherwise be willing to proceed.

What happens if the process is ignored or handled incorrectly?

Failure to comply with the right of first refusal can have serious consequences. A landlord who sells without following the statutory process may commit a criminal offence, and leaseholders may have enforcement options even after a sale has completed.

For purchasers, failures in the process can emerge late and introduce unexpected risk into what would otherwise appear to be a straightforward transaction.

How does the right of first refusal differ from collective enfranchisement?

Although both rights can result in leaseholders acquiring the freehold or superior lease, they operate in very different ways.

Collective enfranchisement is a right that leaseholders choose to exercise and can be initiated at a time of their choosing, subject to qualification. The right of first refusal, by contrast, arises only when the landlord proposes to sell and must be exercised within strict statutory periods.

Understanding which right applies — and when — is critical to avoiding missed opportunities or unnecessary disputes.

Why early legal advice matters

The right of first refusal is technical and unforgiving. Issues most often arise not because parties act unreasonably, but because assumptions are made, deadlines are misunderstood, or coordination happens too late.

Jennifer Slater, leasehold and enfranchisement solicitor, comments:

“We regularly see leaseholders and landlords underestimate how prescriptive the right of first refusal process is. Problems tend to arise when details are overlooked or when people assume there is flexibility in the timetable. Early advice can prevent rights being lost or transactions becoming unnecessarily contentious.”

Our leasehold and enfranchisement solicitors advise leaseholders, landlords and purchasers on the right of first refusal and related leasehold matters. Clear advice at an early stage can help establish whether the right applies, identify realistic options, and avoid issues escalating later.

For guidance on the right of first refusal or advice tailored to your building or transaction, speak to our leasehold and enfranchisement solicitors.