Cross-lease disputes can make you very cross
Q. We have been looking for a property for two years and have finally found one that ticks most of the boxes. The one thing that I’m wary of is that it’s a cross-lease section. My partner and the real estate agent don’t seem to think this is a problem but I’m worried that it will cause us hassles down the track. What do you think?
A. Cross-leases are probably the most complicated form of property ownership in New Zealand. They can be so troublesome that the Law Commission has even recommended they are abolished.
It’s great that you’re trying to get your head around what buying a cross-lease property might mean for you – many people don’t make the same effort 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. In a cross-lease title, property owners share ownership of the land and the buildings on it. Essentially, 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 and each one will set 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, so you can see if it matches the property you are looking at.
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, 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 extremely tricky.
For example, let’s say that you own a cross-lease property that you want to sell. You and your coowners might share driveway access, or some common garages. You might have a buyer for your property who is interested only 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’s a crosslease property they would have to get all the other owners to agree (and offer their consent in writing).
This kind of thing happens more than you might think – last year singer Neil Finn was embroiled in a complicated crosslease case with his neighbours. Two Auckland families are currently at loggerheads after one of them demolished the house on a cross-lease property without the other leaseholder’s consent.
Even if you do get the other owners’ consent, you will have to have the lease 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 can’t tell you whether a crosslease property is right for you or not, but I strongly recommend engaging a lawyer before you make any decisions; especially to review the terms of the crosslease. Their first step should be to check that the property you are interested in matches the one marked on the lease plan. They will help you unpick all the conditions of the 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 the property and land. It may be worth getting an independent assessment of the property as a whole, from an inspector who has professional indemnity insurance and carries out their work in accordance with the New Zealand Property Inspection Standard. As always, it’s smart to figure all this out at the start of the process rather than after the fact.
Kevin Lampen-Smith is the chief executive of the Real Estate Agents Authority (REAA), the independent government agency that regulates the New Zealand real estate industry. If you have a question about buying or selling property, send it to susan.edmunds@fairfaxmedia.co.nz For independent advice on buying or selling property, check out www.reaa.govt.nz.