At its simplest, a cross lease involves the land underneath a house being jointly held in freehold amongst a number of house owners, but not the houses on that land. Rather, the houses on the land are owned jointly, but the individual owners are tenants with exclusive rights to occupy their own houses. As an example:
There is a section in Havelock North with two flats on it held in a cross lease. John owns the front flat, while Jess owns the back flat. They both own a half share in the underlying land, and they are both considered the landlords for both flats, however John is the tenant of the front flat with exclusive rights to occupy it, and Jess is the tenant of the black flat with exclusive right to occupy that.
The cross lease will also have areas of the property that are held in common. On the ‘flat plan’ you’ll find these areas represented as restricted use areas and common use areas. The restrictive use areas are generally for your personal use – providing you a private area for gardening or a courtyard etc. The common use areas tend to be for all owner’s use – a shared driveway would be a good example.
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. Practically, the cross-lease is about setting guidelines and rules for a shared area of property. It’s likely that it will place restrictions on how you can use your house. This could be as minor as not allowing pets, or as restrictive as limiting how you can alter the house. It’s really important you have a good understanding of those restrictions before signing on the dotted line (if you make an alteration you weren’t supposed to it might create a defect which would need a whole new cross-lease being drawn up – an expensive process).
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 they the same? Did all the owners consent to all the structures in the common areas?
- Understand the insurance implications for both yourself and your mortgagees. Should all the flats be insured together? Or should each owner have their own insurance policy?
As lawyers we always tend to err on the side of caution and suggest that for any transaction involving large sums you should get legal advice, but in the case of a cross-lease, it’s even more important. There are many pitfall’s that we can help you avoid, so please get in touch with us if you have any queries.
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