Section 5 Notices are a routine part of many freehold and long leasehold disposals, yet they remain one of the most misunderstood areas of landlord and tenant law. With strict statutory requirements and serious consequences for non compliance, both landlords and managing agents can find themselves exposed if the process is not handled correctly from the outset.
This article breaks down the key questions we’re asked most often: what a Section 5 Notice is, when it applies, what it must contain, and the rights and obligations of both parties, so that property owners and professionals can navigate the process with confidence.
What is it a Section 5 notice?
A Section 5 Notice is a legal notice served under the Landlord and Tenant Act 1987. It gives qualifying leaseholders the right of first refusal when a landlord intends to sell the freehold or long lease of the Property. The Notice sets out the proposed sale terms and gives qualifying tenants the opportunity to purchase the Property, within a fixed period, before it is offered to an external buyer.
The purpose of the requirement is to protect leaseholders when a landlord plans to sell the Property.
When does it apply?
The Notice must be served when a landlord plans to sell the freehold or long lease in a building that has at least two flats and more than half of the flats are held on long leases by qualifying tenants.
What is a qualifying tenant?
To be considered a “qualifying tenant”, the occupier must satisfy the following requirements:
- They must hold a lease with a term no less than 21 years
- They must not own three or more flats in the building
- If a flat is jointly owned, the joint owners will be considered one singular “qualifying tenant”
The building itself must contain more than two flats and no more than 50% of the areas must be used for non-residential reasons.
Business tenancies, assured shorthold tenancies, and any other specific short-term tenancies will not qualify.
What should be included in the Notice?
A Section 5 Notice must outline the exact terms of the proposed sale. This includes:
- the purchase price
- contractual conditions
- the timeframe for qualifying tenants to accept the offer.
This ensures that leaseholders can make an informed decision before proceeding.
Leonie Rowe, Associate and Licenced Conveyancer in our Property Team shares the below:
“Section 5 Notices can seem daunting, but they’re ultimately about transparency and fairness. When landlords understand their obligations and tenants understand their rights, the process becomes far smoother for everyone involved.”
What Notice should be served
The notice required depends on how the Landlord disposes of the freehold:
- Section 5A Notice: used when selling the freehold to a specific purchaser under a private contract.
- Section 5B Notice: used when disposing by auction.
- Section 5C Notice: used when disposing by way of tender.
When should the Notice be served?
The Notice must be served to qualifying tenants before the landlord agrees a sale to a third party.
Once served, there must be a statutory minimum acceptance period of no less than two months from the date of service, during which qualifying tenants may decide whether to accept the offer and begin arranging the purchase.
When is Notice not legally required?
A section 5 notice is not legally required where the disposal of a property by the landlord is not considered a “relevant disposal” under the Landlord and Tenant Act 1987, or where the tenants are not “qualifying tenants” as they do not meet the criteria.
Below are some examples of where a section 5 notice is not legally required:
- A transfer of property to family members
- Transfer of property between companies
- Disposal of property through a gift or will
- The transfer is the result of a court order e.g. divorce or bankruptcy
- Transfer of property from one charity to another
What are the rights of the Landlord and Tenant?
A section 5 notice exists to protect qualifying leaseholders by giving them a legal right of first refusal. This means tenants must be given the opportunity to purchase the freehold prior to a third-party.
Leaseholders have the right to receive full and accurate information about the proposed sale, as well as a minimum response period that allows them time to seek legal advice, arrange finances and nominate a purchaser if they choose to proceed.
The tenants are not obliged to buy the freehold, but the opportunity must be offered to them.
Landlords have a legal obligation to serve the notice correctly, on all qualifying tenants. The Notice must include the correct statutory format, content and timing. The landlord must ensure that the property is not sold to a third party on better terms than those offered to tenants.
Failure to meet these requirements can result in serious consequences for landlords. Both landlords and tenants are encouraged to seek legal advice, so the process is followed accurately.
What are the consequences of Non-Compliance?
In situations where a Section 5 Notice is served incorrectly, contains inaccurate information, is served on the wrong parties, is served too late, or does not allow the tenants the required statutory time to respond, the sale of the property may be unlawful under the Landlord and Tenant Act 1987.
In such circumstances, the landlord may have committed a criminal offence, and penalties such as fines and prosecution may apply. In addition, the qualifying tenants may challenge the transaction of the property. The tenants may have the right to claim the freehold of the property on the same terms as the original disposal.
Non-compliance can also result in significant financial and practical consequences, including delays, increased legal costs, and uncertainty for all parties involved. A buyer who unknowingly purchases a property without a valid Section 5 Notice being properly in place may face the risk of losing the property to the tenants.