A freehold reversion is where there is a leasehold agreement that expires and the ownership of the flat or the house that was previously owned by the leaseholder reverts back to the ownership of the freeholder again.
Therefore the freehold is “reverted” and the freehold agreement is then turned into a freehold reversion.
In England and Wales, all land has a freehold title regardless of whether it is registered as a freehold or not as this is part of legislation related to the crown.
You can read up on this further using our article, how to find out if a property is a freehold or not. In this article, it explains that a property’s freehold title may also be subject to a leasehold title, which is more valuable.
In general, freehold reversions are important because there is money to be made if you have recently acquired a new freehold or it has been reverted to you so a lot of investors will do this in order to make money from leaseholders.
In addition to this, at the end of this article, we will go over how to find a freehold reversion and buy it in the right way so you don’t run into any legal issues.
How to invest in freehold reversions
So, how can you make money from freehold reversions of houses? As you may already be aware if you are interested or invested in property, there is a lot of money to be made everywhere if you conduct yourself in the right way in a property business.
First things first, if you are looking to make the most money from holding on to a title of a leasehold or freehold then you will have to make sure that you hold on to the leasehold most importantly.
While both the freehold and leasehold titles have value, the leasehold is more valuable because only the leaseholder has the right to occupy the property.
However, if you are a freeholder of a property and you do not have a leaseholder then this is even better as you are able to own the property outright.
With all the options below, you may find that it is worth buying the freehold of a house and it could set you up financially very well. It all depends on the deal you manage to acquire and the way leaseholders have treated the property.
How to collect ground rents after a freehold reversion to make money
If you are the owner of a freehold property, there are ground rents payable for leaseholders.
It is very important that you understand what type of leaseholder is eligible for this payment though because not all are. As of new rules, only those that are on a longer lease that is over 21 years should
How to deal with pre-sale enquiries to make money from freehold reversions
If a leasehold property is being sold and you are the freeholder. Then you will be able to charge the buyer of the leasehold for asking any questions known as pre-sale enquiries.
It is widely accepted that there should be a fee for this service and this can be anywhere in the region of £100 – £150.
However, sometimes, if you are looking to make a bit of money as a freeholder you can charge significantly more and will likely be able to get away with it as the new buyer of the leaseholder is in a position where they don’t want to waste time.
Nonetheless, this should be approached with caution as the buyer or the leaseholder can always head to the Leasehold Valuation Tribunal to protest this fee and you may have to give the money back in the end.
How to make money from giving consent to alteration with a freehold reversion
Before going ahead with the advice in this paragraph, it is important to check the terms of the agreement you have before you do anything else.
Having said this, most leasehold agreements state that it is the responsibility of the leaseholder to ask for any changes to their property from the freeholder and all alterations must have the freeholder’s consent.
As a freeholder, if you find that alterations have been made, even if it is found that you were absent during the period in which it took place. You then have the right to charge a fee too.
So, if you are a new freeholder and you have recently bought the rights to a freehold then you would have the right to come in and do this and this can be a good way to increase your income as a freeholder as fees are usually in the region of £400.
In addition, if you are looking to catch a leaseholder out further then you may want to hire a surveyor perhaps from the Royal Institute of British Surveyors which you can find on this website here.
This would tell you if any of the work in the property has been conducted incorrectly and allow you to charge a fee for works that need re-doing based on the leaseholder not asking the freeholder for consent in the first place.
In some cases, as well as being able to charge for any alterations to the leasehold, a freeholder may be able to charge for alterations to other freeholders that are neighbouring their property.
For instance, in the case of a flying freehold, there could be overhanging parts of a property that damages another freehold property and this could mean a freeholder could acquire the damaged premises and begin making charges to neighbouring freeholders.
Being able to charge for lease extensions
Finally, the most significant financial benefit of holding the freehold of a property is the ability to charge for lease extensions, which can vary depending on factors such as the length of the lease left and the amount of ground rent payable.
It’s often not worth extending a lease that has more than 80 years left on the agreement, so if the lease is for 800 or 999 years, which is frequent for older house leases, the leaseholder may not need to prolong.
Furthermore, on every lease assignment, the purchaser must serve a notice of change of ownership to the freeholder, and the freeholder is normally authorised to impose a fee. Sometimes the lease will demand that the leaseholder acquire authorization from the freeholder in the form of a licence before assigning the lease, and you can charge a fee for this as well. Furthermore, on every lease assignment, the purchaser must serve a notice of change of ownership to the freeholder, and the freeholder is normally authorised to impose a fee.
Sometimes the lease will demand that the leaseholder acquire authorization from the freeholder in the form of a licence before assigning the lease, and you can charge a fee for this as well.
What is the best way to buy a freehold reversion?
If you are looking to buy a freehold, they are often listed for sale or they are listed as a portfolio of freeholds for sale at auction at a time 10 – 70 years before the freehold reversion takes place.
However, if you are a leaseholder and trying to buy the freehold of your flat then you should be able to find out if a property is a freehold by looking on the land registry here and then contacting your freeholder to see if they are interested in selling.
There are also some other ways of finding out if a property is a freehold or not that can give you an indication that can be found on this article but they aren’t as legitimate as looking on the land registry. This can be good if you cannot find the property you want on the land registry though.
There may also be restrictions on a freehold flat mortgage by lenders so it is important to be aware of this when you are buying.
Why is it a good idea to sell before a freehold reversion?
If you are a leaseholder, you will generally take the worse end of the deal if there is a freehold reversion. This is because the freeholder will gain access to the leasehold and again be able to make changes to the property without concerning you.
As well as this, if someone wants to acquire a freehold, this is also known as a freehold reversion and the new owner will be able to make money from a leaseholder in a variety of ways as discussed above.
Therefore, if you are a leaseholder and you know that your arrangement with your lease is going to come to an end soon then you should look to sell as soon as you can so you can make some money back before all of your rights get taken away.
Alternatively, a leaseholder could make a case to take ownership of the freehold title which can be done by all of the leaseholders coming together and forming an agreement known as a shared freehold.