Understanding Cross-lease Titles
Properties come with various forms of tenure (Title types), they are all okay, but some are more restrictive than others. The important thing is that you understand what it is that you are buying, what you can and can't do under that tenure, and the potential problem areas to check before going unconditional with an offer to purchase.
Cross-lease Titles are a type of tenure where the relationship between the co-owners is often not fully understood, and where there may be important discrepancies on the Flats Plans associated with the Titles. Cross-lease Titles are very common in the Auckland market, and feature in other parts of the country too.
The most common type of Cross-lease is a Freehold Cross-lease Title. The easiest explanation of how this works is by way of an example. Take a typical block of four flats (Units 1, 2, 3 and 4) that are each owned by a different person (lets call the owners A, B, C and D). Together owners A, B, C and D own the freehold land as 'tenants in common', that is they each own an "undivided" ¼ share. They cannot do anything with the land without all agreeing. They each lease their units from each other on the same terms, typically for a period of 999 years (to near infinity). For example Unit 1 is owned exclusively by owner A. Without invitation, owners B, C and D have no rights to Unit 1 and likewise owner A has no rights to Units 2, 3 and 4. If owner A wants to make any external changes to Unit 1, she must gain the permission of owners B, C and D before she starts.
When comparing Cross-lease Titles, some are very basic, while others are more complex, but perhaps convey greater rights to the owners. Where the outdoor area is shown as 'common' on the flats plan, all owners have equal rights to use it. That is, you could have a picnic on the lawn area outside your neighbour’s window if it is a common area. Other areas are clearly marked 'exclusive use' such as for courtyards that accompany each unit, and allocated parking or garaging.
Common issues and misconceptions that are often encountered are:
- The belief that you can extend the home without the need to obtain permission from your co-owner(s) in the Cross-lease. You should not change the external boundaries of your property without permission of your co-owners;
- Additions to the home or additional buildings on the site that are not shown on the Flats Plan. When alterations are undertaken, in addition to all necessary Council consents and completion certificates, it is essential to have the Flats Plan re-drawn to reflect the changes. This can be done at any stage, but until it is undertaken it creates a 'defect of Title'. An incorrect Flats Plan can reduce the saleability of a property, as any switched on purchaser will want the situation either rectified or will discount the price they are willing to pay, as they will want to rectify the situation themselves. If the consent of the co-owners was not obtained before the works were completed, or required Council consents were not obtained, the additions may have to be removed;
- Fencing off parts of common area for individual use. Consent of co-owners is required before any fencing is installed, and this arrangement should be formalized by the re-drawing and deposit of a new Flats Plan, or the arrangement has no legal standing, and these fences could be required to be removed in the future;
- Accessing the most recent Flats Plan. The Flats Plan that is attached to a Title search may not always be the most recently deposited Flats Plan, these are sometimes 'hidden' within other documents registered against the Title such as a Variation of Lease. Make sure your lawyer has searched them all, and that what is on the most recent version matches physically what you have observed on site. Don't expect your lawyer to know if the Flats Plan is correct, as they don’t visit the property. Take a copy with you to the site and ensure that it reflects what is actually there. If not, there is more work to do.
- Inconsistencies in documentation. Check the lease documents match the front Title page. We’re aware of scenarios where the Title specified a ½ share but the Cross-lease document showed a 1/3rd share. This situation could only be rectified with agreement from the adjoining owner.
The important thing is to understand the relationships between the various parties, and to ensure that the physical situation that is being sold to you, matches the actual legal situation. While ideally you may like to purchase a Freehold site, the home you fall in love with may come on a Freehold Cross-lease Title. Don't despair, just do your homework...
To make it easy for you to access official copies of Title documents and Flat Plans you can purchase copies of these from qv.co.nz. To order a Title document you will need to know the certificate of title number, land district and instrument number. If you are unsure of any of these details you can find them out for most properties by searching for the property by address and purchasing a Certificate of title details report. If you are unsure about anything that appears on a Title, we recommend you consult your lawyer.
