Cross leases were a popular form of ‘subdivision’ going back to the 1960’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. The advantages in cross lease developments were removed when the Resource Management Act 1991 came in to effect.
A cross lease is where a number of people own an undivided share in the ownership of a piece of land and the homes that they build on the land are leased from the other land-owners. 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 to approach your neighbours to make these changes, and also obtain their written permission.
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 that is 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 add a new addition, 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 look at. 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.