Beware residential tenants' rights of first refusal in mixed use buildings - DAC Beachcroft

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Beware residential tenants' rights of first refusal in mixed use buildings

Published On: 11 January 2016

Should a Landlord wish to dispose of its interest in an apartment block, the residential flat owners are given the right under the Landlord and Tenant Act 1987 to be offered the chance to buy the interest first.

Complications can therefore arise where a Landlord owns mixed-use premises, comprising commercial or retail units with flats above. Where the use of the premises is only partly residential, if the internal floor area of the part that is residential represents 50% or more of the internal floor area of the premises as a whole, the premises may nevertheless qualify as premises caught by the 1987 Act.

If the Landlord is not careful, when it comes to selling their investment, it will need to offer its interest to the flat owners first (including its interest in the commercial or retail units) before it is then able to transact with its intended buyer. The 1987 Act contains strict procedures and timescales that can carry criminal liability if breached.

Early consideration of the residential lease structure, which is put in place prior to sales of the flats, can help to avoid such issues. Alternatively, an early exchange of contracts with the intended buyer of the Landlord's interest, before 50% of the flats are sold, should also mean that the 1987 Act will not apply to the transaction.

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