In these uncertain economic times, there is a real opportunity to “value-add” that should not be overlooked. If you currently own, or are looking at purchasing, a cross-lease property, there is a mechanism available to you, to convert existing cross-lease tenure to fee simple.
Cross-lease properties are renowned for being complex and prohibitive in nature, when it comes to development work. Due to this, a cross-lease property will be in less demand than a fee simple property, and as such, this will affect the value of the asset.
The reason cross-lease properties are less desirable, is that there are specific provisions set out in the cross-lease documents, which restrict what you can legally do to your house. In many cases, making changes to your property, without neighbours’ written consent, is in breach of the conditions of the cross-lease.
A cross-lease is a form of tenure where multiple individuals own an undivided share in the land upon which the structures are sited (ie. everyone owns all the land together, no one party independently owns the land that their home sits on). The land is being leased from all the other owners, generally on 999-year terms.
Cross-leases started in the 1970’s as an alternative to subdivisions. Cross-leases allowed developers to obtain a separate title, by often avoiding extensive subdivision rules, and their associated financial contributions, and thus providing a significantly cheaper way of subdividing.
There are important considerations when owning a cross-lease. The joint ownership requires additional checks to be undertaken prior to purchase and can complicate and prolong the sales process. Things to be aware of:
You are required to get written permission from all the other title owners if you want to carry out any additions or alterations to the exterior shape of the building.
When buying the property, the relevant Flats Plan must truly reflect the location and configuration of all of the buildings on the property. If not, it is referred to as a “defective title” and may result in purchasers not getting a mortgage approved until the title is corrected.
When selling a property, a “defective title” may delay the selling process again until the situation is rectified by a new Flats Plan.
In either case a new Flats Plan will need to be prepared by a Licensed Cadastral Surveyor and deposited with LINZ.
“Common Property” is a part of the site where all lease holders have use of the area. This can lead to conflicts regarding use and maintenance, particularly when the “common property” is a driveway.
Depending upon the terms of the cross-lease, there may be need to obtain all owner’s approval for painting the exterior or making non-structural changes to a building, constructing a deck or erecting a fence.
Cross-lease owners must have a current insurance policy, but these do not have to be with the same company. This can raise significant problems in cases of fire or earthquake damage.
However, a cross-lease can be converted to a Freehold (Fee Simple) title. This is typically called a ‘change of tenure’ subdivision. It will involve a full subdivision consent application, which Council will normally approve subject to a few standard conditions. It should be noted that most Councils are in favour of the ‘change of tenure” and have simplified their rules regarding this type of subdivision. Typical conditions include the requirement to check drainage, to provide individual water connections, and to provide suitable easements covering any services.
Following Council’s satisfaction that all consent conditions have been met, a full Land Transfer survey, including pegging of all boundaries, needs to be undertaken and approved by LINZ. All areas shown on the cross-lease must be accounted for and all owners are required to sign the final documents.
For this stage, you will require the services of a Licensed Cadastral Surveyor, to undertake the necessary survey works and to prepare the subdivision consent application. You will also require the services of a lawyer, to deal with the legal matters associated with a change of Title.
Contact the team at Cross Lease Solutions to discover how we can assist you with adding value to your cross-lease property!
After you have spoken to us, you’ll quickly see why it is worth considering addressing your “cross-lease headache”, as the advantages of fee simple over cross-lease tenures are numerous, including:
Fee simple titles are easier to sell with greater marketability and typically higher sale value, often estimated at 7-15%.
The land owner has greater flexibility on what they can do with their property, especially in terms of additions and alterations
Potential buyers have less issues obtaining a bank loan.
The risk of any neighbour disputes regarding use of the property is mitigated.