The Right of First Refusal: what trustees must do before disposing of a freehold

Failure to comply with RFR can invalidate the transaction, expose trustees to criminal prosecution, and create personal liability risks that cannot be avoided by good intentions or delegation. Breaches cannot be remedied retrospectively.

What is the Right of First Refusal?

RFR is a statutory protection requiring landlords to offer their interest to qualifying leaseholders before selling to a third party. The purpose is to give leaseholders the opportunity to acquire the freehold or headlease of their building and take control of its management. When challenged, courts have consistently sided with leaseholders.

The legislation applies regardless of ownership structure. Trustees are treated no differently to individual or corporate landlords.

When does RFR apply?

RFR applies where (i) the building contains two or more flats; (ii) more than 50% of those flats are held by ‘qualifying tenants’ (broadly, long leaseholders); and (iii) at least 50% of the internal floor area (excluding common parts) is residential. Assured tenancies (which will become the default letting tenancy following the Renters’ Rights Act 2025) do not qualify for RFR.

Compliance risk is often higher in buildings which trustees may not regard as primarily residential. Mixed-use buildings held as long-term commercial investments within trusts are a common source of inadvertent non-compliance.

RFR is triggered by transactions trustees may not intuitively regard as sales, including grants of headleases, assignments of the landlord’s interest, or disposals of common parts of the building such as roof space, lofts or corridors.

Are there exemptions?

Although exemptions exist, they are narrow and fact-specific. Assumptions that an exemption applies (for example, because a transaction is intra-group, part of estate planning, or commercially unavoidable) are a common cause of error. Disposals required by statute, wills or matrimonial proceedings will often be exempt, but trustees should remain cautious.

Helpfully, transfers of legal title arising solely from the appointment or replacement of trustees of the same trust are expressly exempt.

What must trustees do before selling?

Where RFR applies, trustees must serve a formal Section 5 Notice on all qualifying leaseholders setting out the principal terms of the proposed disposal. Leaseholders must be given at least two months to accept (four months for an auction). Only if the offer is not accepted may trustees proceed with a third‑party sale (even conditionally), and then only on no more favourable terms.

Strict rules govern notice content, service and timing. Failure to address RFR early can derail a timetable or transaction entirely.

Consequences and key takeaway

Failure to comply is serious. Non-compliance is a criminal offence, for which trustees may be prosecuted. Leaseholders may also compel the purchaser to transfer the interest to them on the original terms.

Given trustees’ fiduciary duties, early advice and strict compliance are essential to avoid delay, loss of value, aborted sales and potential personal liability.

RFR is technical, time‑sensitive and easy to underestimate. Trustees should assume it may apply to any disposal of a freehold or headlease including flats, and take early specialist advice.

For further information please contact James True, Parminder Sidhu or your usual Wedlake Bell adviser.

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

Meet the team:

1. 

   • Parminder Sidhu

   • Partner
   • Residential Property

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2. 

   • James True

   • Senior Associate
   • Residential Property

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