A cross lease is a type of land ownership in New Zealand where a section of land, and the buildings on that land, are owned by all owners of the home units in equal shares.
Each home unit is then leased by all those owners to the owners of that home unit for a nominal rental (e.g. 10 cents per year) and, for all practical purposes, for an indefinite term (999 years).
When you purchase a ‘cross lease’ property you will be an owner of a certain share in the land in common with the other co-owners and also the owner of a leasehold interest in your house.
Your rights and obligations as a cross lease owner
Your rights and obligations are defined in a home unit lease. The lease is registered on the title to the property together with a “Flats Plan”.
A Flats Plan shows the position of all buildings, including garages and sheds and should accurately follow the outline of these buildings. Some areas on the Flats Plan may be defined as “Exclusive Use” areas. This means that one of the co-owners has exclusive use of that area the adjoining co-owners are prevented from entering onto that area unless they need to do so to make necessary repairs.
There may also be common areas shown on the Flats Plan, such as driveways, that can be used in common by the co-owners.
When you are purchasing a ‘cross lease’ property, you need to carefully check the buildings shown on the Flats Plan and satisfy yourself that all buildings are shown and that the outline of the buildings is correct. If there have been any alterations done to the buildings that extend the external dimensions of any buildings the Flats Plan will need amending.
You also need to familiarise yourself with all the conditions shown in the cross lease itself. In some circumstances, the lease may contain restrictions that will adversely affect your enjoyment of the property. For example, the lease may prohibit you from keeping pets.
If you are purchasing a cross lease property and intend to make alterations to the property in the future you must first ensure you obtain the consent of the co-owners. We recommend that you get consent from the co-owners in writing and then keep it somewhere safe! This will avoid any doubt in the future over whether consent was given (particularly when you come to sell the property).
If any alterations change the external boundaries of the buildings on the property it will be necessary for a surveyor to complete a new Flats Plan and for a replacement Lease to be registered making reference to the new Flats Plan.
Although a technical legal defect in the ‘Flats Plan’ or lease documents will not necessarily adversely affect your enjoyment of the property it is likely to cause problems in the future when you come to sell a ‘cross lease’ property. For example, the omission of exclusive use areas may not have any practical significance while you are the owner, especially if the section around the house is fenced and the adjoining owners are physically prevented from entering onto this area, however, you may have difficulty convincing any prospective purchaser of this and it could result in you incurring the cost of remedying the defect in the Flats Plan to ensure the property can be sold. It is most likely that a Solicitor acting for a purchaser will point out the defect to their client and probably recommend that they not proceed with the purchase while the defect remains.
Although a “cross lease” is a modified form of ownership it does have some advantages over fee simple ownership. The advantages are that you as an owner have some control over the actions of the adjoining owners. For example, a standard form of lease provides for the owners of both flats to keep and maintain the buildings in good order, repair and condition. Also, if any person wants to make structural alterations to their flat that alter the external dimensions, they need your consent.
Of course, as the other owners have the same control over your use of the property, this may be seen by you to be a disadvantage.
For more information
It is important if you are considering purchasing a ‘cross lease’ property that you are fully informed of the conditions and restrictions in the lease and for this reason we urge you to familiarise yourself with these and get in touch with us if you have any difficulty or questions. Call our property experts Helen Nathan on 07 349 7486 or Sarah Mathews on 07 349 7500 for more information.