A reversion is the right to exclusive possession of a property after a specified date (‘reversion date’). Assume no ground rent is payable. Its complement is a leasehold, the right to exclusive possession before the reversion date. Both rights together add up to total rights to the property, hence the sum of leasehold and reversion = vacant value of property (approximately, since there is something called ‘marriage value’, which I shall ignore).
How should we price the reversion? It’s a controversial issue in real estate appraisal. One method is to estimate the present value of the foregone rent on the property, but even this is not simple. The problem is that the corresponding leasehold is like a long term rental for the property. Short term rentals are a guide, but with short term rentals (a) there is the problem of void periods between tenancies, which will reduce the effective rental, and importantly (b) short term rentals can be re-fixed upwards after the short term rental expires. Also (c) when a leasehold approaches expiry, and where the lessee chooses not to apply for an extension, the lessee may have little interest in maintaining the property. They may choose to rent to people who will wreck the property, and they certainly will not pay for structural repairs if not in the terms of the lease. And (d) the owner of the reversion has comparatively few management costs, particularly in the case of long dates greater than 99 years.
Any ideas appreciated. (I have my own, but sitting on them for now).