FAQs – PROPERTY WITH LEASEHOLDERS

 

Why does the official receiver need to be particularly concerned with properties with freeholders?

 

There are special provisions where the official receiver is dealing with a property owned by the bankrupt as a freehold that is let to a third party or parties on a leasehold basis (see paragraph 31.3.207).

 

In short, the provisions ensure that leaseholders (tenants) are given certain rights, particularly where the property is to be sold.  These FAQs discuss those provisions.

 

Does it apply to all properties let by the insolvent?

 

No.  It is important to note that the provisions do not apply to properties let on an assured or assured shorthold basis – which will include the vast majority of domestic short-term lets (see paragraph 31.3.205). 

 

What, basically, are these special provisions?

 

The provisions essentially give the leaseholders a right of ‘first refusal’ where the freeholder (the landlord) intends to dispose of the property.

 

There are also provisions that provide for the leaseholders to request that such a sale is offered, and to seek information about the property from the freeholder.

 

See paragraph 31.3.206.

 

What constitutes a ‘disposal’ of a property

 

The most common type of disposal will be a straight sale of the freehold.  Certain types of disposals are excluded from the provisions, such as disposals between family members, or a disposal to the Crown (see paragraphs 31.3.210 and 31.3.211).

 

A disclaimer of a property is not considered to be a relevant disclaimer (see paragraph 31.3.213).

 

Are all types of premises included within the provisions?

 

No.  The property must have two or more flats, and the provisions do not apply where more than 50% of the internal floor area is used for non-residential purposes (see paragraph 31.3.214).

 

Do the provisions apply to all landlords?

 

No.  Certain categories of landlord are excluded – such as a landlord that occupies, as his/her primary residence, one of the flats of a converted property, and also certain housing associations (see paragraph 31.3.216).

 

How is such an offer made to the leaseholders?

 

The legislation provides that the landlord must prepare and serve an ‘offer notice’ giving the tenants first refusal.  The offer notice must describe the property and include the terms on which the offer is being made, including the requested consideration.  In practice, the official receiver is likely to engage professional assistance in this process (see paragraph 31.3.217).

 

What happens after the offer notice is served?

 

The tenants, on receiving the offer notice, and assuming they wish to proceed with a purchase, have two months in which to nominate a person to acquire the property interest (see paragraph 31.3.219).

 

Is each part then committed to a sale?

 

No.  Each party may withdraw.  Where it is the tenant who has withdrawn, the landlord may then sell the property on the same terms as if the offer had not been accepted (see paragraph 31.3.223). 

 

Where it is the landlord that withdraws, he/she is not then entitled to dispose of the interest in the 12 months following the disposal (see paragraph 31.3.224).

 

Depending on the date of the withdrawal, there may be costs to pay by the withdrawing party (see paragraph 31.3.225).

 

What if no offer is received from the tenants within time?

 

If no offer is received within the two months allowed, the landlord may sell the freehold to any other third party, within 12 months of the offer notice, provided that it is sold for at least the amount, and on the same terms, as outlined in the offer notice (see paragraph 31.3.221).

 

Earlier, you mentioned that the tenants have the right to seek information from the landlord?

 

Yes, the tenants have the right to seek information regarding a previous sale – to check, for example, it was conducted in line with the relevant provisions.  In such a case, the official receiver should generally co-operate with such requests (see paragraph 31.3.226).

 

What if the previous sale was not conducted properly?

 

If a previous sale was not conducted in line with the relevant provisions, the tenants have the right to take advantage of the contract of sale as if they were the original purchasers.  Where tenants indicate such an intention, the official receiver is likely to need to seek legal advice where the property has value.

 

Do the tenants have any further rights?

 

Yes, the tenants have the right to obtain information about the property and to exercise a right to purchase the freehold interest (this is known as the right of collective enfranchisement) (see paragraph 31.3.229).

 

The official receiver should, so far as is possible, assist as regards information requests.  Where a request for collective enfranchisement is received, the official receiver should seek legal advice.