THINGS TO CONSIDER BEFORE BUYING
Like all property purchases, many search for the perfect property. In the search you come across properties known as ‘cross lease’, but you’re not sure what this means. You’re not alone. Cross leases are one of the more complicated forms of property ownership in New Zealand. Many people struggle to understand what buying a cross lease property means for them. So let’s unpack the legalities of a cross lease.
SO WHAT EXACTLY IS A CROSS LEASE?
Cross lease owners all own the undivided freehold plot of land that sits underneath the houses. Our example shows three cross lease properties. Each cross-lease also purchases a leasehold interest in respect of the particular dwelling that they will occupy/purchase. Leases are usually for 999 years and sometimes the flats plan and lease outline an exclusive area of the underlying freehold land that you can use as well as any shared areas of the property. This means that your house is set apart just for you, but you can also have access to shared areas (like a driveway, garages, or a common garden area) with the other owners.
Three sets of owners own the three cross lease properties situated at 99 Waitakere River Road, Swanson being, Flat A, Flat Band Flat C. Neil & Joanne own Flat C. Michael owns Flat B. Helen owns Flat A.
All three sets of owners own the entire land underlying 99 Waitakere River Road, Swanson, with each set of owners owning a 1/3 share in the land. This means that each of them owns a one third share of the entire underlying land, but not any specific part of the land.
Collectively, Neil and Joanne, Michael and Helen lease out flats (the dwellings) on the land to themselves individually. Collectively as a group they lease Flat C to Neil and Joanne, Flat B to Michael and Flat A to Helen.
Each of these leases gives the owner(s) of the flat exclusive rights to the use and enjoyment of that flat, with equal access to shared areas.
When purchasing a cross lease property, purchasers must ensure that their lawyer checks the lease documents of each of the three leases to determine whether there are any exclusive use areas. For example, a lease may state that Flat C has an exclusive use area for the owner of Flat C. This means that Neil and Joanne can use that area, but Michael and Helen cannot. However, some leases do not refer to exclusive use areas. Our example doesn’t provide for any exclusive use are for Flat A and Flat B – this is a very common defect. This means that Michael and Helen have exclusive use to their flat (the dwelling), but not any specific part of the land. Therefore, they can use any part of the land. An example of issues that may arise would be if Neil and Joanne had a washing line outside of their dwelling, but Michael frequently used it. This annoys Neil and Joanne but Michael is rightfully able to use the washing line, as it’s not for either party’s exclusive use, despite it being outside of Neil and Joanne’s flat(but not in their exclusive area).
OBLIGATIONS TO THE OTHER OWNERS
The cross-lease document usually contains a requirement that any structural changes to the property, or shared areas must be agreed upon by all the owners. This means owners must obtain all other owners’ consent before making any changes to the exterior floor print of your dwelling – even, for example, building a deck or putting up a fence. If Neil & Joanne decide they want a deck to enjoy summer BBQ’s, they must seek the written consent of both Michael and Helen before they construct and depending on the alteration, Neil and Joanne may also need to obtain building consents from Auckland Council and have their lawyer update the Flats Plan and the record of title with LINZ to show the addition of the deck. To update the Flats Plan requires a re-survey of all of the buildings on the land, and the consent of all of the other owners and each of their mortgagees to the new Flats Plan. Additionally, Neil and Joanne may have to pay the legal fees of all other owners to do this, so it can become quite costly especially if there are many dwellings/owners that form part of the cross-lease Flats Plan. Too often purchasers/owners are not made aware of these particular and special requirements when purchasing a cross lease property and therefore don’t follow this process when undertaking renovations. Moreover, often purchasers inherit an earlier owners’ renovations if the cross lease is not thoroughly checked at the time of purchase. There can be issues with insurance and Banks where dwellings are joined together.
Purchasing a cross lease property means maintaining good relationships with other co-owners under the cross lease. The lease documents often include restrictive covenants (terms and conditions) obligating cross-lease owners to each other including the quiet enjoyment of the property, keeping the entire property free of rubbish, and maintaining the cost and repair of common areas such as driveways and lawns. Leases can contain restrictions on pets and subleasing to others i.e., tenants. So, it’s really important that a purchaser clearly understands what they are getting into and how a cross lease property can impact their use and enjoyment of their property.
BUYING & SELLING A CROSS LEASE PROPERTY
Buying and selling a cross lease property requires extra care to the legalities as part of the due diligence and solicitor’s approval clauses. Issues can arise which complicate or delay the sales process, particularly where problems are identified on the Flats Plan, including exclusive use areas and any alterations that were not recorded on the Flats Plan by other owners. Before making an offer on a cross lease property, you should have your lawyer review the record of title, the cross-lease documents and the Flats Plan, along with other registered interests on the title including any covenants and/or easements. With your assistance having viewed the property (or the agent), lawyers should be able to determine if any defects exist on the Flats Plan to raise with the vendor before confirming conditions. Buyers should have a very clear understanding of their obligations to the other cross lease owners and their rights and restrictions of the use of a cross lease property before going unconditional.