Understanding Pre-Emption Rights for Property Buyers and Sellers

A pre-emption right can be a useful tool for someone selling a property, but they can cause some confusion or last-minute stress for both purchaser and seller.

What is a pre-emption right?

Essentially, a pre-emption right grants a nominated party the right to purchase the property in preference to anyone else. The terms “pre-emption” and “right of first refusal” are often used interchangeably but strictly a pre-emption could be:-

• A right of first refusal – the beneficiary must be offered the right to purchase the property before anyone else i.e before it goes to market; or
• A right of last refusal – the beneficiary must be given the right to match any third party offer before that third party sale can complete

If a pre-emption right is contained in the title deeds, it will more often be the latter.

Why is a pre-emption used?

These are usually imposed as a title condition for a variety of reasons, including anti-embarrassment: if a buyer has negotiated particularly good terms, the seller might not want them selling on to a third party for an uplift that the seller had been trying to obtain. Alternatively, it could be for management purposes such that the seller wants to try and retain a degree of control over a wider development, so either wants to vet incoming purchasers, or to take land back for redevelopment.

Where will I find the terms of the pre-emption right?

These will almost exclusively be on the face of the titles.  If the pre-emption right is not registered against the title, it doesn’t “run with the land” i.e. cannot bind future owners. However, if you are the party who entered into the original pre-emption, it will still be enforceable against you as a matter of contract (rather than as a title condition).

Alternatively, the pre-emption may be contained in a contractual agreement, and the buyer grants a security over the property for the obligations it contains. Whilst this doesn’t function as a title condition, it has a similar effect, as you will not be able to discharge the security without complying with the terms of the agreement.

How does it work?

The terms will vary from deed to deed, but in a well-drafted pre-emption right, the owner will usually have to offer the property to the person who has the benefit of the pre-emption. That person will normally have a fixed period of time in which to accept the offer, and if they decline (or fail to respond) the owner is free to sell the property as they wish.

When is it relevant/enforceable?

A pre-emption right can usually only be triggered once. If the party having the benefit of the pre-emption right fails or declines to take up the offer, there are statutory provisions which confirm the right is extinguished.

Conclusion

A pre-emption right will normally have a defined procedure to follow and, once that procedure is followed, the property sale can continue and the right is extinguished. The presence of a pre-emption right does not necessarily affect valuation,  as in most cases, it will provide for the beneficiary to match any third party offer i.e. the owner gets the same price for the property whether it’s from a third-party buyer or the person exercising their pre-emption right.  Where a pre-emption can cause problems, however, is where the procedure is not followed. This most often occurs where these are spotted at the last minute, meaning settlement of a sale is delayed while the seller has to contact the pre-emption holder for consent to proceed.

If you think your property may be affected by a pre-emption right, we recommend that you contact your solicitor at the earliest opportunity and they can advise you on the next steps to ensure a smooth completion to your transaction.