Understanding the Section 6 (Tenant's Acceptance Of Offer) Notice: A Guide
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by Robert Jones, Founder of Property Investments UK
With two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
In UK property law, a Section 6 Notice, governed by the Landlord and Tenant Act of 1987, is a critical legal instrument. Also referred to as an acceptance notice or more fully a tenant’s acceptance notice, it is the method by which leaseholders can formally accept a landlord’s offer to sell them the freehold rights to the land on which their property is built.
Of course, we are talking about the leasehold here, and therefore mostly about flats. A Section 6 Notice comes into play when a freeholder wishes to sell their asset, which is to say the land on which residential properties are built. In this scenario, the freeholder must offer the freehold rights to the leaseholders before they can sell the freehold to another party.
A Section 6 Notice is the legal notice that the leaseholders would send back to the landlord, to inform them of their intent to buy.
Leasehold and freehold relationships in England and Wales are complicated. Here, we will endeavour to explore the Section 6 Notice and discuss its detail, practical function and significance and answer the common questions related to it.
But - and it should go without saying - if you are involved in any kind of legal trouble or are about to commit to any kind of legal action, you should be seeking professional advice.
Introduction
The Section 6 Notice is a legal document, governed by the Landlord and Tenant Act 1987, that plays a crucial role in mediating the relationship between landlords (in this case, meaning freeholders) and tenants (leaseholders), should the landlord wish to sell his or her freehold.
In this scenario, the leaseholders are given a right of first refusal. This is to say that the landlord has to offer them the opportunity to buy the freehold first. This 'first refusal' offer must be done using a Section 5 Notice, which we also have an article on.
A Section 6 Notice, therefore, is a legal response to a Section 5 Notice. It is where a landlord tells their tenants that they wish to sell and offers them first refusal on the purchase. Should the tenants wish to proceed with purchasing the property, they would need to send the landlord an S6 Notice (also known as an Acceptance Notice) back.
The complexity of this is obvious. The freeholder could be only one person or entity who has chosen to sell. There are instances where a freehold may consist of only a small number of flats or even a single dwelling, a more typical example would be a block of flats, with 10s or even 100s of separate units and owners.
Therefore any response to a S5 Notice with a S6 will commonly require a great deal of organisation on behalf of the leaseholders.
The Landlord and Tenant Act, 1987
The Landlord and Tenant Act of 1987 was a rather technical Act, concerning the relationship of leaseholders and freeholders in England and Wales. A lot of it was concerned with updates to the Landlord and Tenant Act of 1985 but there were some seemingly small changes regarding the relationship between landlord and leaseholder that have had lasting impact, the main ones being:
- Leaseholders were given the right to apply to a court to change a lease.
- Changes to the rules around service charges made the system more accountable and less open to abuse.
- The right of leaseholders to know the name and contact details of the freeholder.
And of course, what we are looking at here: Section 6 Notices and the right of leaseholders to buy the freehold rights, should the freeholder wish the sell.
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The Right of First Refusal
We mentioned in the introduction that a single dwelling can be a freehold. This, however, is not a typical arrangement and the right of first refusal, guaranteed under Section 5, only applies to freeholds, on which there are two or more flats.
As already stated, the right of first refusal refers to a leaseholder's right to organise with the other leaseholders in a housing block to have the first opportunity to buy the freehold with which their properties are associated, should the landlord decide to sell.
Typically, the timeframe for taking advantage of this first refusal and responding with a Section 6 Notice is two months after the Section 5 Notice has been issued, after which period the freehold can be sold on the open market.
Note: there are scenarios why a right of refusal might not be given, for instance, if:
- More than 25% of the units in the building are not used for residential purposes.
- More than a third of leases in the building are not eligible. (A lease could be considered ineligible if there is less than 21 years on it or if it covers more than three units in the building.)
What Are the Timeframes Involved?
When a freeholder issues a Section 5 Notice the leaseholders, should they wish to buy the freehold, will have an amount of time to respond with a Section 6 Notice, that will be specified. Normally, this would be two months but this timeframe shouldn’t be assumed.
During this time, the landlord is not allowed to sell the freehold and must wait for the tenants’ decision.
The Nominated Person
In order for a group of leaseholders to issue a Section 6 Notice, they will need to nominate someone to represent them, whose signature will have legal weight for the group.
This could be any one of the leaseholders, chosen either for their experience, for their available time or general diligence. To avoid any future complications, It is important that evidence is kept regarding the nominated person’s selection process is gathered and kept.
It is also important that the nominated person accesses legal help on behalf of the group.
What Needs to be Included in a Section 6 Notice?
For a Section 6 Notice to be legal, it must include:
- Date of the notice, the address of the building in question and confirmation that the leaseholders intend to buy the freehold.
- The name and address of the person nominated by the group.
- The names and addresses of every leaseholder involved in the purchase.
- A signature for the nominated person.
The Full Process: Summing Up
To sum everything up, here is the full process from the perspective of the tenants from receiving the Section 5 Notice to issuing a Section 6 Notice.
- The landlord (freeholder) decides that they want to sell their freehold. Legally, they have to give their tenants (the leaseholders) the first right of refusal for buying the freehold from them. They, therefore, issue the tenants with a Section 5 Notice.
- On receipt of the Section 5 Notice, the tenants decide that they do in fact want to collectively buy the freehold rights.
- The tenants nominate one of themselves to represent the group (and seek the advice of a solicitor).
- Collectively they inform the landlord of their intention to buy the freehold by issuing a Section 6 Notice to the landlord.