Does S5(5A), Housing Act 1988 have any effect on typical PRS tenancies?

Question

S5(5A), Housing Act 1988 refers to rights "of pre-emption":

(5A)Nothing in subsection (5) affects any right of pre-emption—

(a)which is exercisable by the landlord under a tenancy in circumstances where the tenant indicates his intention to dispose of the whole of his interest under the tenancy, and

(b)in pursuance of which the landlord would be required to pay, in respect of the acquisition of that interest, an amount representing its market value. “ Dispose ” means dispose by assignment or surrender, and “ acquisition ” has a corresponding meaning.

What types of rights or scenarios does this section envision or cover? Simply, what is the meaning of this section?

The explanatory notes mention shared ownership leases, but the provision itself does not seem to confine itself to such scenarios, but is perhaps rather more general. Does S5(5A) have effect in other more common types of PRS AST types of arrangements that do not entail shared ownership?

Answer 1

Subsection 5(5A) was inserted by section 222 of the Housing Act 2004, and the explanatory notes provide an explanation of its purpose:

Section 222 enables landlords of shared ownership properties to include rights of first refusal in their shared ownership leases in order to help with the retention of affordable housing units.

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Enabling the landlord to buy back the property, where the tenant wishes to dispose of it, would prevent the loss of affordable housing stock to the open market, particularly in rural areas where replacement is difficult, and would allow the housing association to re-sell the unit in more affordable tranches.

Section 5 of the Housing Act 1988 would previously have operated so as to make a right of first refusal unenforceable. Shared ownership leases are generally assured tenancies, as because of the rental element they are not long leases at low rent.

Section 222, by excluding rights of first refusal from section 5 of the Housing Act 1988, will allow landlords to insert and enforce rights of first refusal in shared ownership leases to assist with the retention of affordable housing units. If included in the lease, a right of first refusal will simply require the shared owner to offer the property back to the original landlord. There will be no obligation on the landlord to accept.