Real Estate things you once knew but may have forgotten - Rights of pre-emption

Rights of pre-emption

Although rights of pre-emption are not usually encountered from week to week, they do feature in transactions from time to time. Accordingly, set out below is a brief summary of the nature of such rights and the key elements to be borne in mind when granting or receiving them. Rights of pre-emption can also arise by reason of statute (for instance, the Landlord and Tenant Act 1987 in respect of residential tenants), but such rights are beyond the scope of this short resume.

A right of pre-emption is a right of first refusal which entitles the grantee to be offered a given opportunity (such as the grant of a lease on expansion land) before it is made available to anyone else. It is not an option and the grantee cannot guarantee that a particular outcome will arise, but can only wait to see if the grantor's actions trigger future opportunities. The following key points need to be borne in mind when granting or receiving such rights:

• The length of time for which the right is to subsist should be clearly stated.
• When a triggering event occurs, the grantor should be required to serve a "triggering notice" on the grantee. It should be made clear that any such notice cannot be withdrawn.
• The grantee should be required to accept the triggering notice within a set period of time, failing which the right of pre-emption will lapse.
• Ideally, prescribed forms for the triggering notice and the acceptance notice should be set out in the original agreement granting the right of pre-emption. These two notices, in combination, will represent the relevant agreement to sell or to lease and therefore will need to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
• The terms of any subsequent sale or letting arising from any exercise of the right of pre-emption need to be set out in detail, whether in the original agreement granting such rights or by reference to the event which has triggered the right - in which case, they need to be detailed in the triggering notice.
• Whether or not stated, time will be of the essence (Churchman and Another - v - Lampon and Another [1990] 1 EGLR 211).

When first granted, a right of pre-emption granted after 13th October 2003 in relation to registered land has efect from the time it is created as an interest capable of binding successors in title. This is so even if the right is granted informally, e.g. by letter. Such rights should be protected by way of registration of a notice at the Land Registry, or by way of a C(iv) land charge (in respect of unregistered land). Dependent upon the circumstances surrounding the triggering of such a right in relation to rights granted before 13 October 2003 (and there has been significant case law on the point), an interest in land may arise upon such triggering event occurring or only later when and if the pre-emptive right is exercised by the grantee. At that time, it will be necessary to register further notices or land charges, as referred to above, to protect fully the interest in land which has then been created.

For further information please contact Martin Pennell on +44 (0)20 7367 2195 or at [email protected].