Cross-Leases are a complicated form of property ownership in New Zealand and lots of people find them hard to understand.
In fact, they can be so troublesome that the Law Commission has recommended they are abolished.
Types of Ownership
There are four main types of property ownership in New Zealand – Freehold, Leasehold, Unit Title and Cross-Lease. In a Cross-Lease, you own a share of the freehold title with the other Cross-Leaseholders and a leasehold interest in the particular area and building that you occupy.
It is important to understand what buying a Cross-Lease property might mean for you.
Many people don’t do their due diligence on Cross-Leases and find themselves in a bit of a mess as a result.
Cross-Leases are common in areas where there has been a lot of subdividing of larger sections, or in blocks of two to four units – the houses may be standalone homes, or they may be units/flats. In a Cross-Lease title, property owners share ownership of the land and the buildings on it.
If you hold a Cross-Lease, you are a part-owner of every building on the plot of land – not just the one you occupy – with the other leaseholders.
Each Cross-Leaseholder is granted what is known as a Registered Leasehold estate of the particular area and building that they occupy.
These leases are usually for 999 years for a nominal rent, like 10 cents per annum.
Each lease sets out exclusive areas of occupation as well as any shared or common areas.
In other words, your house or unit is set apart just for you and your family, but you have equal access to shared areas (like a driveway, or garages, or a common garden area).
A Cross-Lease title also includes a plan of the footprint of the property, called the Flats Plan. So, you can see if it matches the property in which you are interested.
This form of shared ownership means that any structural changes to the property or shared areas must be agreed upon by all the owners.
Depending on the terms of the Cross-Lease, you may need to get the other owners’ consent for things like painting the exterior of your property, building a deck or putting up a fence.
These provisions are usually referred to as covenants. A covenant may place restrictions on what you may do with the unit or building, so it is important to understand what they mean – this is where things can get tricky.
For example, you own a Cross-Lease property that you want to sell. You and your co-owners share driveway access and some common garages, but you have a buyer for your property who is only interested if they can knock down one of the garages.
If the property was Freehold, where there is one sole owner, the new buyer could do what they liked (within the limits of the Council restrictions). However, because it is a Cross-Lease property, the buyer would have to get all the other owners to agree (and offer their consent in writing).
Need for caution
Be careful when making enclosed additions to a Cross-Leased property (for example, adding an extra room or conservatory). Even if you do get the other owners’ consent to do it, it will change the overall floor plan of the property and you will have to have the Flats Plan altered so the change is shown.
This will cost money, but if you don’t do it the land title will not be accurate and this can cause problems when you go to sell.
I strongly recommend engaging a lawyer to review the terms of a Cross-Lease property.
Their first step should be to check that any property you are interested in matches the one marked on the flats plan.
They will help you unpick all the conditions of a Cross-Lease Agreement, including finding out what the restrictions are and how many other owners are involved.
A lawyer will also be able to advise you if there are particular issues with the property you are interested in and find out what changes have been made by other owners.
A Land Information Memorandum (LIM) will also show you information held by the local Council about a certain property and land.
It may be worth getting an independent assessment of a Cross-Lease property from an inspector who has professional indemnity insurance and carries out their work in line with the New Zealand Standard for Residential Property Inspection (NZ S 4306:2005).
As always, it would be smart to figure out as much as you can about a Cross-Lease property at the start of your home-buying process rather than after the fact.
For independent guidance and information on buying or selling, please visit www.settled.govt.nz
Kevin Lampen-Smith is Chief Executive of Real Estate Authority based in Wellington.
Image from MBIE Guide ‘Repairing and rebuilding multi-unit residential buildings