When right of first refusal has backfired on freeholders:
Example one
In 2011, landlord Sardar Muhammad Ishaq Khan moved his freehold without notifying leaseholders – and nearly lost everything. He transferred the title into an associated company for £225,000. It was only the following year when lessees noticed Crispy Cod, a fish and chip shop, had moved into the block in Hoxton, east London that they engaged lawyers, created their own company and served a notice on him, demanding the freehold for the same price.
Eager to close down the legal challenge, Mr Khan shifted the freehold back into a company under his sole name. Energised by a second potential breach of the 1987 Act, lessees sought to force the landlord to give them the freehold at no cost. The County Court was sympathetic to their plight and ordered Mr Khan, who the judge said “brought this situation upon himself”, to comply with their request.
Had Mr Khan not successfully appealed at the High Court, he would have lost his valuable asset without compensation. He also would have been made to part with the lucrative income streams associated with having commercial units onsite. While Mr Khan got away with transferring his freehold, the case shows that the Right of First Refusal has its uses in the leaseholders’ armoury.
Example two
In 1997, the freehold to a small block in Crouch Hill, north London changed hands. The proper notices hadn’t been issued.
It would not be until 2009 – some 12 years later – that leaseholders could coalesce and mount a legal challenge.
Partly due to the tenant-friendly drafting of the 1987 Act, a piece of legislation hurried through by the Thatcher government keen to secure the support of the London mansion blocks in upcoming polls, the leaseholders in the Maloney & ors v Gosal [2011] case obtained the freehold at well below the market price.
Although the courts put an extra £30,000 on the cost, the leaseholders came away with a freehold discounted to the value of £350,000. The landlord who was compelled to part with the land was not even the person who benefited from the original purchase, but his heirs.
One of the strengths of the Right of First Refusal is that the time-period for serving a purchase notice only starts when leaseholders become aware of the potential breach, so it’s never too late to pursue this legal avenue.
Example three
In 1992, the freehold to a two-flat block in Southend moved from one company to another. Leaseholders did not find out about the change of ownership until 2002.
Mr Green, who was a leaseholder of a flat when the change took place, made a claim for the freehold in 2004 when the landlord was pursuing him for breach of lease.
The county court allowed Mr Green three months to issue the correct documentation on the landlord in order to acquire the freehold.
Despite the litany of errors contained within his notice, including a failure to mention that a transfer of the freehold was sought, the High Court waved it through. The judge referred to the historical context, allowing the two leaseholders to pay just £500 for the freehold.
Mr Green and his neighbour therefore managed to reverse a transaction made in 1992.
