I’ve been writing about UK property law for long enough to notice a pattern: the rules that catch people out aren’t the obvious ones. They’re the ones buried in legislation from the 1980s that most buyers have never heard of. Right of first refusal is exactly that kind of rule. It applies to tens of thousands of residential buildings across England and Wales, yet I’d wager most people buying a flat or a freehold have no idea it exists. Under the Landlord and Tenant Act 1987, if you’re a freeholder selling a building that contains two or more flats, you may be legally required to offer it to the leaseholders first. Fail to do so, and you commit a criminal offence. The buyer can be forced to resell the freehold at the original purchase price. That’s not a minor technicality — it’s a risk that can wipe out your investment.
If you’re buying a residential lot with the intention of building flats, or you’re purchasing a freehold that already has flats on it, this rule could apply to you. The consequences of getting it wrong are severe. Here’s what you actually need to know.
What Right Of First Refusal Actually Means For Freehold Buyers
The right of first refusal is created by Part I of the Landlord and Tenant Act 1987. It’s a reactive right — it only kicks in when the landlord voluntarily decides to sell. That’s different from collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993, which leaseholders can exercise proactively at any time. The key distinction is this: with right of first refusal, the price is set by the freeholder’s offer. With collective enfranchisement, the price is determined by an independent RICS valuation. That makes RFR potentially cheaper for leaseholders, but it also means the freeholder has less control over the final outcome if the process goes wrong.
What I’d do if I were buying a freehold with flats: I’d check the lease lengths of every tenant before exchanging contracts. If more than 50% of the flats are held by qualifying tenants, I’d assume RFR applies and plan the sale process accordingly. It’s far cheaper to get this right upfront than to unwind a transaction later.
Why This Matters For Anyone Buying A Residential Lot
You might be thinking: I’m buying a bare plot of land, not a block of flats. That’s true — but the moment you build flats on that land, or buy a freehold that already has flats on it, the rule applies. The Landlord and Tenant Act 1987 doesn’t care whether you intended to trigger it. It cares about the physical reality of the building. If the building contains two or more flats and more than 50% of those flats are held by qualifying tenants, you’re in scope.
Here’s a scenario that comes up more often than you’d think. You buy a freehold building with four flats. Three are let on assured shorthold tenancies. One is let on a 99-year lease. You decide to sell the freehold. Because only one of the four flats is held by a qualifying tenant, the 50% threshold isn’t met — so RFR doesn’t apply. But if two of those AST tenants later acquire long leases, the balance shifts. Suddenly, more than 50% of the flats are held by qualifying tenants, and the next sale triggers the obligation.
The criminal offence under section 10A of the 1987 Act is committed at the point the disposal is made. In a sale, that means at exchange of contracts, not completion. Serving the offer notice after exchange doesn’t cure the breach. I’ve seen cases where freeholders thought they could fix it later and ended up facing prosecution. The encumbrances that can affect a residential lot are often invisible until it’s too late — and RFR is one of the most consequential.
What I’d do: before buying any freehold with flats, I’d get a solicitor to confirm whether the building qualifies for RFR. I’d also check whether any tenants have the right to extend their leases, because that can change the qualifying tenant count. A property lawyer can run this check quickly — and it’s money well spent.
Where Freehold Buyers Go Wrong
I’ve seen the same mistakes repeat across dozens of transactions. Here are the ones that cause the most damage.
Assuming RFR doesn’t apply because the building is small
The rule applies to any building with two or more flats. It doesn’t matter if it’s a converted Victorian house with two flats or a purpose-built block with fifty. The threshold is the same. The only exception is buildings where the landlord lives in a flat and the building has no more than four units. If the freeholder is a company, it cannot be a resident landlord — so that exception doesn’t apply. A company freeholder is always treated as non-resident, which means the building is always in scope if the other conditions are met.
Thinking AST tenants count toward the 50% threshold
This is the most common error I encounter. AST tenants are not qualifying tenants for the 50% calculation. Only long leaseholders with leases originally granted for more than 21 years count. If you have a building with four flats — two on long leases and two on ASTs — only the two long leaseholders count. That’s 50%, which meets the threshold. But if you have three ASTs and one long leaseholder, that’s 25%, which doesn’t. Getting this wrong can lead you to believe RFR doesn’t apply when it does, or vice versa.
Serving the offer notice after exchange of contracts
The criminal offence is committed at exchange. Serving the notice afterwards doesn’t fix it. The only way to comply is to serve the offer notice on each qualifying tenant individually before you exchange. Service must be by registered post to each tenant’s flat or last known address. If you can’t reasonably ascertain a tenant’s identity or address, you can serve by advertisement under section 5B of the 1987 Act — but that’s a fallback, not a shortcut.
Ignoring the purchase notice remedy
This is the one that keeps me up at night. If a freeholder breaches the RFR rules and sells to a third party, the leaseholders have six months from discovering the breach to compel the new owner to resell the freehold to them at the original purchase price. The purchase notice remedy binds the new purchaser, not the original landlord who breached. So if you buy a freehold without checking whether RFR was properly complied with, you could be forced to sell it back to the leaseholders for the same amount you paid. That’s not a fine — it’s a forced resale at no profit, plus legal costs.
→ Scroll right to see all columns
| Condition | Requirement | Key detail |
|---|---|---|
| Number of flats | At least 2 | Counted by flat, not by building |
| Qualifying tenants | More than 50% of flats | Long leases only (21+ years) |
| Resident landlord | Must not be resident | Company freeholders always non-resident |
| Exempt landlord | Must not be exempt | Local authorities and housing associations exempt |
What I’d do: before exchanging on any freehold with flats, I’d ask the seller for written confirmation that the RFR process was followed. I’d also check the Land Registry records for any notices or restrictions that might indicate a breach. If there’s any doubt, I’d insist on an indemnity policy or walk away.
How To Handle Right Of First Refusal Properly
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If you’re a freeholder planning to sell, or a buyer looking to purchase a freehold with flats, here’s the process you need to follow.
Determine whether RFR applies
Start by counting the flats. Then check the lease lengths of every tenant. If more than 50% of the flats are held by qualifying tenants (leases originally granted for more than 21 years), and the building has at least two flats, and the landlord is not resident and not exempt, then RFR applies. If the building has more than 50% non-residential floor area, it’s excluded. If the landlord lives in a flat in a building with no more than four units, it’s also excluded. Get this in writing from a solicitor before you proceed.
Serve the offer notice correctly
The freeholder must serve an offer notice under section 5 of the 1987 Act on each qualifying tenant individually. The notice must include: the property being disposed of, the consideration (price or other terms), any conditions attached, and the acceptance period — which must be at least 12 weeks from service. Service must be by registered post to each tenant’s flat or last known address. If you can’t reasonably ascertain a tenant’s identity or address, you can serve by advertisement under section 5B. Don’t cut corners here — improper service invalidates the entire process.
Handle the acceptance or rejection
At least two-thirds of qualifying tenants must serve an acceptance notice within the acceptance period. If they do, they must nominate a purchaser — which can be a company formed by the leaseholders, a trustee, or any individual they choose. If the terms aren’t agreed within two months of acceptance, either party can apply to the First-tier Tribunal to determine the terms under section 8B of the 1987 Act. If two-thirds don’t accept within the period, the freeholder may sell to a third party only on the same or better terms within 12 months of the offer notice expiry.
- 1Confirm the building qualifiesCount flats, check lease lengths, confirm landlord status. Get a solicitor’s opinion in writing.
- 2Serve the offer noticeUse registered post to each qualifying tenant. Include price, terms, conditions, and a minimum 12-week acceptance period.
- 3Wait for acceptance or rejectionIf two-thirds accept, negotiate terms or apply to FTT. If not, you have 12 months to sell to a third party on the same or better terms.
- 4Exchange contracts only after complianceThe criminal offence is committed at exchange. Do not exchange until the process is complete.
What buyers need to check before purchasing
If you’re buying a freehold with flats, you need to verify that the seller complied with RFR. Ask for copies of the offer notice, proof of service, and any acceptance or rejection notices. Check the Land Registry for any restrictions. If the seller can’t provide evidence of compliance, you’re taking a significant risk. The leaseholders have six months from discovering the breach to compel you to resell. That clock starts ticking when they become aware of the sale — not when you complete. A real estate lawyer can review the documentation and flag any gaps before you commit.
Frequently Asked Questions
Does right of first refusal apply if I’m buying a bare plot of land? ▾
Can leaseholders waive their right of first refusal? ▾
What happens if the freeholder is a company? ▾
How is the price different from collective enfranchisement? ▾
Can I sell to a family member to avoid RFR? ▾
What if I buy a freehold without knowing about a breach? ▾
Right of first refusal is one of those rules that looks straightforward on paper but gets complicated fast. The key takeaway is simple: if you’re buying or selling a freehold with flats, get professional advice before you exchange contracts. The cost of a solicitor is tiny compared to the cost of a forced resale. If this was useful, you might also want to read Guide To Purchasing Residential Lots In Green Belt Areas.
Sources and Further Reading
Tips For Buying A Residential Lot In Future Urban Expansion — If you’re buying land that may become part of a future development, this guide covers the planning and zoning considerations you need to know.
Landlord Right Of First Refusal UK. Letsafe UK, 2024.
Right Of First Refusal For Leaseholders. Property Passport UK, 2024.
