Cross leases were a popular form of ‘subdivision’ dating back to the 1960’s through to the 1980’s. The reasoning behind this system of land development was that cross-leases were not considered to be a subdivision and therefore developers could avoid Council requirements for subdivisions. The cross lease was especially popular for small developments.
Cross leases are used when more than one house is built on the same piece of land. In a cross lease situation, the land is owned (in shares) by the owners of each of the houses, units or flats situated on the land. If your cross lease has two houses on it, then each owner will ordinarily own an undivided half share (in the land), three houses would be an undivided one third share, and so on.
The homes built on the land are leased from the other land-owners. Each owner grants to the others a long-term lease of the flat or unit that owner occupies. Each owner is granted a lease by the other owners and that is why they are called a ‘cross lease’.
A cross lease title has a plan attached (the flat plan) which outlines the areas of exclusive occupation (the house or unit occupied by each owner, a private area of garden or a courtyard, for example) and any common areas (such as driveways or parking areas). Without the cross lease document and the flat plan, there would be no way to know who is entitled to occupy which part of the land.
So what does this mean financially? Normally, a cross lease will be held for a really long period (like 999 years) for a small rental – often as little as $1.00. The implications of a cross lease arrangement are more likely found in the lease document for the property.
Because the lease document provides that each owner is a landlord and also a tenant in respect of their own house or unit there are guidelines and rules about the property. This could be as minor as not allowing pets, or as restrictive as limiting how you can alter the house or the colour you can paint its exterior. It’s really important you have a good understanding of those restrictions before signing on the dotted line.
Another possible restriction is in relation to making alterations to the flat or the erection of other buildings on the exclusive use area you occupy, without the consent of the other owners. When any major building work or alterations take place on a cross lease title, owners usually must get the consent of the other owners. Often people don’t realise that owning a cross lease property will require your neighbour’s permission to building alterations.
In the worst of situations, owners may have to pay a neighbour to get permission for building work, or end up in a dispute over consent being given….or not!
It is also very important to know that when alterations are made to a cross lease property that alter the footprint of the house, a new plan and title need to be created. This is something few cross lease owners realise. It is commonly discovered when they go to sell their cross lease property and are told their title does not match what the property actually now looks like after an alteration.
For a cross lease title to be correct, the external appearance of the house or flat needs to match the footprint (the outline of the house or unit) shown on the plan attached to the certificate of title (the flat plan). It is very common for owners to add a conservatory, addition, or outbuilding of some kind and not to arrange the necessary legal work to have their title corrected. This can result in what is called a defective title.
While many clients have done all the rights things with Resource and Building Consents from Council and their alteration or conservatory is legal in that regard, what Council doesn’t usually tell owners to do is to update their flat plan and title. The building work may be legal; but the title to the property now does not match what is on the ground. To correct the title requires consent from all other owners, a new survey of the property, a new flat plan showing the flat as it now looks with the addition and a variation to the lease. Having a defective title can result in trouble selling the property not to mention the cost in putting it right.
Some of the important things to keep in mind and check when dealing with a cross lease are:
- Check the flat plans against what is actually there – make sure the external dimensions match up.
- Know the terms of the cross lease – especially the restrictions. Make sure you understand who is responsible for the upkeep of the interior and exterior of the flat.
- Do a bit of digging into the other cross-leases within the development. Are all the flats compliant with the terms of the cross lease, what is actually happening at owner level?
The purchase of a house is a big deal, whether it is a cross lease or not. You should get legal advice to ensure you are going in with your eyes wide open. There are many pitfalls’ that we can help you avoid, so please get in touch with us.
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