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Our clients wanted to exercise their rights under the Landlord and Tenant Act 1987 to buy the freehold, but a serious commercial lease breach created risks around insurance, finance, and liability. We advised on enforcement options and ran litigation alongside the purchase, enabling the deal to proceed. The freehold was acquired successfully, and the breach was later resolved by negotiation, protecting the investment.
We acted for the leaseholders of a mixed-use building comprising four residential flats and one commercial unit, following the landlord's service of a Right of First Refusal notice under the Landlord and Tenant Act 1987 ("the Act") to sell the freehold for £100,000.
The Act requires certain landlords to offer qualifying tenants the right to purchase the freehold before selling to a third party. This right applies to buildings with two or more flats where residential leaseholders form the majority a criterion met here despite the building's mixed-use nature.
The landlord's Section 5 offer is a 'take it or leave it' proposition, leaseholders have no right to negotiate on price, though the price offered must be fair. A landlord cannot artificially inflate the price and then sell to a third party on lower terms, to do so would constitute a criminal offence, exposing the landlord to unlimited fines, potential imprisonment in severe cases and the leaseholders' right to compel a sale from any new purchaser.
All four residential leaseholders collectively obtained independent valuation advice, were satisfied that the price was fair and agreed to proceed. However, the transaction was complicated by a potential breach of the commercial lease in the building.
The principal challenge was an alleged breach of lease by the commercial tenant. Without permission, the owner of the commercial unit had erected two residential units within the freehold land and was letting them out a serious breach with significant implications for building management, insurance, and the prospective buyers.
The breach had the potential to undermine the leaseholders' investment in several ways:
Insurance risk - the unauthorised conversion placed the building's insurance in jeopardy. Insurers could have declined cover or imposed restrictive terms, leaving the building inadequately protected and exposing the new freeholders to increased premiums or difficulty obtaining cover altogether.
Mortgage and lending risk - any leaseholder requiring finance for the acquisition could have faced significant obstacles, with lenders likely to raise concerns about lease enforceability and potentially refuse to lend or impose onerous conditions.
Ongoing management and liability - as prospective freeholders, the leaseholders would have been acquiring responsibility for enforcing the commercial lease. An unresolved breach would have transferred that liability to them, along with the cost and complexity of post-completion enforcement.
Financial uncertainty - left unaddressed, the breach risked delaying or derailing the purchase entirely potentially causing the leaseholders to lose their freehold opportunity within the statutory time limits and the freehold being sold to a third party.
Litigation advice was obtained at the outset, enabling the team to assess the risk of proceeding and develop a clear strategy both for managing the breach through post-completion enforcement and for achieving pre-completion resolution where possible.
Rather than pause the transaction, the teams worked in parallel, we progressed the freehold acquisition within the statutory window while the litigation team assessed the strength of the landlord's position under the commercial lease and advised on the available remedies.
The litigation team identified that the available remedies included specific performance, an injunction, or forfeiture action and confirmed that the landlord would be entitled to recover costs from the commercial unit owner. This gave the leaseholders a clearly defined enforcement route and the confidence to proceed, knowing they would hold effective legal tools to compel compliance after completion of the acquisition.
The leaseholders successfully acquired the freehold, securing full control over the building's management and long-term protection of their investment.
Following completion of the acquisition, the breach was resolved by negotiation rather than court action, the owner of the commercial unit agreed to remove the unauthorised residential units, eliminating the ongoing management risk entirely.
This case demonstrates our firm's ability to manage complex enfranchisement transactions alongside live disputes, coordinate across specialist teams and deliver successful outcomes despite significant legal and practical complications. The enfranchisement and litigation teams worked in lockstep throughout sharing risk assessments, aligning timelines, and providing coordinated client updates ensuring the purchase completed on time and the clients' investment was fully protected.
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