Part I of the Landlord and Tenant Act 1987 gives residential tenant leaseholders in a mixed-user building (subject to qualifying criteria) the right of first refusal should the landlord want to sell. Normally, the required notice is served on the lessee(s) at the onset and if the tenants want to buy then there is a procedure for arriving at the price.

In Artist Court Collective Ltd v Khan [2015], concerning a mixed user building, the freehold interest (Mr Khan) was transferred to another of his companies for the sum of £225,000. Mr Khan failed to notify the tenants of the transfer, a breach of the Act. Having become aware of their rights, the tenants served a purchase notice on the company requiring the property be transferred to them for the same price. To avoid that, Mr Khan transferred the property back to himself, again, without informing the tenants, but this time, for £0.00 (nil consideration). On discovering the further disposal, the tenants served another purchase notice and asked for the property to be transferred to them for nil consideration.

The court held that the transfers qualified as “relevant disposals” under the Act and triggered the tenants’ rights of first refusal. The disposals were not exempt disposals. Mr Khan was required to transfer the property to the tenants for nil consideration.

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  1. Update.
    The High Court has granted the landlord’s appeal. The deed of trust was reconsidered as part of the transfer. The deed itself could not be viewed as a relevant disposal triggering the 1987 Act.

    The 2013 transfer was found to be an exempt disposal. The judge found nothing in the language of 4(2)(g) 1987 Act that prevented its application to a situation such as this where the legal estate in property held on trust for a beneficiary is conveyed to the beneficiary, terminating the trust and discharging the trustee.


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