What is a cross lease property?
Cross leases were a popular form of ‘subdivision’ created by lawyers dating back to the 1960’s through to the 1980’s. The rationale behind this system of land development was that the creation of cross-leases was not considered to be a subdivision and were therefore protected from rigorous Council requirements for subdivisions. The cross lease system was particularly useful for small developments and the cost advantages of shared drainage and common spaces made it attractive to developers. The main advantages in cross lease developments were all but removed with the introduction of the Resource Management Act 1991 and these types of developments came to an end.
A cross lease is where a number of people own an undivided share in a piece of land and the homes that they build on the land are leased from the other land-owners (normally for a term of 999 years). The houses are usually flats or townhouses. The implications of being on a cross lease are that, when you are making major structural changes to your property or making changes that could affect the flats plan on the certificate of title, then as well as approaching the local authority, you’ll need the other owners in the cross lease to provide their written approval. Another disadvantage is the decision making process around common area (access, outdoor amenity areas etc) must be made in consultation with the other owners and all must be in agreement.
When buying or selling a cross lease property the “flats plan” must accurately reflect what is physically on the ground. If it does not (i.e there are alterations on a house, such as garages and conservatories, that are not shown and the footprint is now different) then the “flats plan” is considered defective. This is a particular issue at time of sale and there are normally two options for the vendor. 1. Update the “flats plan” themselves or 2. Enter into negotiations with the purchaser, where the purchaser agrees to fix the flats plan however this will normally lead to a reduction in the house price. The purchaser, in certain circumstances, can object to a cross lease title on the grounds that the “flats plan” is not accurate. This is called “requisitioning the title” and allows the purchaser the right to cancel the agreement if the vendor does not agree to rectify the title. At the 11th hour of a sale this is the last thing you want to crop up!
Another option open to owners of cross lease properties is to convert them to fee simple titles. When we have a situation of having to upgrade the current “flats plan” to depict an addition, garage etc, it is sometimes better to go the extra mile and convert fully to fee simple. When we look at converting a cross lease property to fee simple there are a number of things we have to consider including compliance with the current District Plan for the area the property is located. The process is reasonably long and can be expensive. It follows the same steps as any type of subdivision and all the other owners in the cross lease must agree. Most Councils will view this as an existing situation however will still impose critical subdivision requirements where they feel appropriate. Services may be required to be separated and or upgraded to current standards. The access (vehicle crossing and shared driveway) will most likely have to be upgraded. These items can be costly in the overall scheme however upgrading a cross lease title to fee simple title will generally increase the value of a property. As in all situations it’s best to undertake full due diligence before proceeding with the conversion process.
At The Surveying Company we undertake many cross lease to fee simple conversions and updates of flats plans. We encourage proactively changing to fee simple titles so that all owners can fully control, protect and manage their individual asset. New cross lease developments are now a thing of the past and where we have multi unit developments, unit titles are usually the best way to deal with those.