Case Study
Rights of Pre-emption
Tuesday 24th June 2008
What is a right of pre-emption?
When a property is sold, the seller can make it a condition of sale that if the purchaser wishes to sell the property in the future, before they do so, they must give the seller the opportunity to buy it back. The right to have the first option to buy back a property is called a right of pre-emption. If the seller decides not to buy it back, the purchaser is able to sell the property as they wish. If the seller wants to buy it back, the purchaser must sell it to them.
How do you create a right of pre-emption?
The right of pre-emption must be declared in the title of the property when the seller sells the property. This ensures that the purchaser cannot ignore it, as any prospective purchaser will discover from checking the title that the property must first be offered to the original seller, before any transaction can proceed.
Have there been any recent changes to the law relating to rights of pre-emption?
Yes. The Title Conditions (Scotland) Act 2003 has made a number of changes.
How do these changes affect rights of pre-emption for shared ownership properties?
Prior to 2003, rights of pre-emption could be created over a share of a property. This meant that rights of pre-emption could be created over shared ownership shares of 25%, 50% or 75%.
However, the 2003 Act prevents new rights of pre-emption being created over a share of a property. Rights of pre-emption must be created over the whole property. Therefore, whether you are selling a 25%, 50% or 75% share of the property, you must now prepare a new document (a Deed of Real Burdens or Deed of Conditions) which is signed by the seller creating the right of pre-emption. It must be registered at Registers of Scotland and their charge is £30. Forms must be completed and signed by the seller's solicitor and submitted with the fee to Registers of Scotland. The missives for the sale of the property must notify the purchaser of this. Accordingly more legal work is now required to create a right of pre-emption over shared ownership properties.
How do these changes affect rights of pre-emption for any other type of property (ie. properties which are not shared ownership)?
These changes do not affect rights of pre-emption over other types of property. The seller is able to put the right of pre-emption in the Disposition to the purchaser - a new document (Deed of Real Burdens or Deed of Conditions) does not need to be prepared or registered so significant extra costs are avoided (although the seller's solicitor may charge a small fee for drafting the wording required for the disposition and for adding a clause to the missives notifying the purchaser that a right of pre-emption will affect the property).
If the seller wants to use the pre-emption right to buy back a property, does this cost anything?
No, the purchaser cannot charge the seller for exercising the right. However, solicitors may be involved in any prospective sale, so legal fees may be incurred in serving formal notices to notify the purchaser that the right is to be exercised.
How many times can the right of pre-emption be used?
Except in one specific case (see below) the right of pre-emption only affects the first re-sale of the property, it does not affect every re-sale of the property. If the first purchaser wants to sell to a new purchaser, they must offer the property to the seller. If the seller decides not to buy back the property, the right of pre-emption is then lost and cannot be used on any subsequent sale.
The only exception to this rule is the special case of "Rural Housing Burdens" introduced by the 2003 Act. Rural Housing Bodies are bodies providing housing in rural areas which have been given permission by the Scottish Ministers to create "Rural Housing Burdens". A Rural Housing Burden is a special right of pre-emption which affects a property every time it is sold and is never lost.
For further information, please contact our Property Team on 0141 221 5562.