Pre Emption Rights – Property Sales

When dealing with commercial property transactions, a key legal concept that often arises is the right of pre-emption, also known as a right of first refusal. Pre-emption rights can significantly impact how, when, and to whom a property can be sold. Understanding how these rights work is vital for both sellers and potential buyers, particularly in the commercial property market where transactions often involve complex arrangements and long-term investments.

If you would like to speak find out more about pre-emption rights in property sales, contact AFG Law today.

What Are Pre-Emption Rights in Property Sales?

A pre-emption right, often referred to as a right of first refusal, allows one party (the beneficiary of the pre-emption) to be offered the opportunity to buy the land or property before the landowner can offer the property to any third party.

These rights often arise in the following scenarios:

• Between landlords and tenants
• Among business partners in joint ventures
• As part of long-term development agreements
• Where an estate owner wishes to sell the land but retain some control

They are usually created by contract and formalised through a pre-emption agreement, which sets out the terms and conditions of the right. Once granted, a pre-emption right can last for a defined period, the pre-emption period, and may be protected by registration at the Land Registry.

They serve to protect the interests of certain parties who may have a prior claim or ongoing business relationship with the property in question.

Types of Pre-Emption Rights (Property)

There are several types of pre-emption rights, each working slightly differently. The most common are:

Right of First Refusal

The landowner has an obligation to offer the property or land to the party with benefit of the pre-emption right before accepting any third-party offer. The beneficiary can accept the offer at the stated terms. If they decline, the owner may sell the property to another party, often within a limited time and on no more favourable terms.

Right of Last Refusal

The landowner can negotiate with third parties but must give the beneficiary a final opportunity to match a third-party offer before completing the sale.

Right to Purchase the Land or Property at a Price to Be Determined by a Third Party

In this instance, the price to be determined is not fixed in advance but is instead determined by a third party, such as a chartered surveyor or independent valuer, based on agreed valuation principles.

Each of these types of pre-emption must be clearly defined in the agreement to avoid future disputes.

How Do Pre-Emption Rights Work?

For a pre-emption right to be enforceable and effective, the following elements should be carefully addressed:

Obligation to Offer

The agreement must specify the obligation to offer the land or property before any third-party sale. This is usually triggered when the landowner decides to sell the property, and not when they are merely considering a sale.

The term ‘disposal’ should be clearly defined to prevent the owner from structuring a transaction to avoid triggering the pre-emption. For example, does the right apply only to outright sales, or also to gifts, transfers within a group of companies, or exchanges of property?

Offer Notice and Acceptance

When the owner decides to sell the land or property, they must serve a formal offer notice to the beneficiary of the pre-emption. This notice should include:

• The terms of the proposed sale
• The sale price
• Any other material conditions

The beneficiary will then have a limited time to accept the offer, often 14–28 days. If they do not respond, or decline the offer, the landowner is typically free to proceed with a sale to another party, but only on the same or less favourable terms, and often within a limited disposal period.

Failure to comply with the procedure set out in the pre-emption agreement can result in legal challenges or claims for breach of contract.

Pre-Emption Period

The pre-emption period defines how long the pre-emption right remains valid. This might be a fixed number of years or tied to specific events. Negotiating this timeframe is critical. Too short, and it may offer little protection; too long, and it may hinder the landowner’s ability to sell the land freely.

Due Diligence Considerations

If you are purchasing a property that may be subject to a pre-emption agreement, it is essential to carry out thorough due diligence. A registered pre-emption right will appear on the title documents at the Land Registry, and failure to investigate or observe these rights can lead to costly legal consequences.

Likewise, if you are a landowner intending to sell, you should consider whether any existing pre-emption rights might delay or complicate the sale process. Disclosure of such rights and provision of any offer notice history is key to ensuring a smooth transaction.

Valuation and Pricing

Where the price is not fixed in advance, it may be determined by a third party under the terms of the agreement. Valuation clauses should specify the assumptions to be used, such as whether development value or a special purchaser premium should be considered. This helps prevent disputes and ensures that the agreed price reflects market conditions at the time of sale.

In rights of first refusal, landowners may wish to retain some flexibility. For instance, they might seek the right to accept an offer from a third party at slightly below the price proposed to the beneficiary without needing to go back and re-offer. However, beneficiaries often resist this, arguing it undermines the benefit of the pre-emption right.

How AFG Law Can Help

At AFG Law, our experienced commercial property solicitors provide practical and strategic advice to both buyers and sellers in transactions involving pre-emption rights.

We can assist with:

• Drafting and negotiating pre-emption agreements
• Reviewing lease provisions or title restrictions
• Advising on the enforceability of rights
• Ensuring compliance with notification procedures
• Resolving disputes arising from breach of pre-emption clauses

Whether you are a landlord looking to sell part of your portfolio, a tenant seeking first refusal on your premises, or a developer securing future rights over a site, we can help protect your position and achieve your commercial goals.

Please call us or drop us an email at commercialpropertyenquiries@afglaw.co.uk to discuss your matter in more detail.