What is a cross lease?
A cross-lease is a type of property ownership where multiple parties own a single piece of land in undivided shares. Each party has the exclusive right to use specific parts of the land (eg, your house and garden) and shared rights over other parts (ie, the shared driveway), as set out in a lease agreement that is registered over the title.
Cross-leases were originally created in the 1960’s as a practical solution to the restrictions placed on subdividing land at the time. Unfortunately, cross-leases have caused other challenges for property owners, including: disputes between neighbours, lower property values, difficulty selling, insurance complications, and ‘defective title’ issues.
We are often asked by clients whether a cross-lease title can be converted to the more conventional ‘freehold’ title. The answer is yes, and we have assisted lots of clients to do so. We set out the benefits and process below.
Converting your cross-lease title to a freehold (‘fee simple’) title can have significant benefits, including:
- Increased Control: With a freehold title, you have complete control over your property. This allows you to make additions or alterations to your property without needing to get written consent from your neighbours or needing to re-survey the cross-lease ‘flats plan’ to correctly show any changes you (or a previous owner) have made.
- Avoiding defective titles: ‘Defective titles’ occur when cross-lease owners have made additions or alterations to a property without updating the cross-lease ‘flats plan’ to correctly show the changes. Cross-lease properties with defective titles can be harder to sell as purchasers don’t want to take on the additional risks or costs associated with fixing the title issues. Banks and insurers often place greater restrictions on lending applications for defective cross-lease properties for purchasers. Once you have a freehold title, you can avoid this costly issue altogether.
- Reduced Risks: Cross-lease ownership can be complex and involves shared responsibilities between neighbouring owners. By converting your cross-lease property to freehold, you can reduce these risks and avoid disputes with your cross-lease neighbours over shared maintenance, insurance, and use of common areas.
- Increased Value: Freehold properties are generally considered to be more desirable and consequently more valuable than cross-lease properties because you have full control over the property. Potential buyers do not need to worry about the complexities of cross-lease ownership or any defective title issues. This can make freehold properties easier to sell.
To convert your cross-lease title to a freehold (‘fee simple’) title you will need to follow the below steps:
- Talk to your neighbours: The first step is to discuss the proposed conversion with your cross-lease neighbours. All of the cross-lease owners will need to agree to the conversion because their properties will all be converted to freehold at the same time. This process may require some negotiation with the other owners to ensure that everyone is comfortable with the process and agreement has been reached about how the costs will be shared.
- Engage a surveyor: Once agreement with your cross-lease neighbours has been reached, you will need to engage a surveyor to obtain a subdivision consent and draw up the new survey plan to define the boundaries of the new fee simple titles.
- Complete physical works: Once you have obtained a subdivision consent and survey plan, you will need to complete any physical works required by the Council as set out in the subdivision consent. This could include things such as installing separate water meters for each property, making alterations to the driveway, or installing infrastructure for other shared services. Once the works have been completed, you will need to obtain Council’s sign off to proceed with the conversion.
- Talk to your lawyer: You should discuss your conversion plans with your lawyer early on in the process. Your lawyer will assist by:
- Reviewing the resource consent, survey plan, and the current cross-lease titles;
- Streamlining processes with your surveyor and the neighbours’ lawyers;
- Drafting surrenders of the existing cross-leases;
- Drafting new easements between the owners and working with Council and other service providers to obtain any other easements required by the subdivision consent;
- Dealing with your bank in order to discharge the existing mortgage from your cross-lease title and registering a new mortgage over the new freehold title;
- Submitting all required information to Land Information New Zealand (LINZ) to obtain the new freehold titles.
- Update your mortgage: If your property has a mortgage, your bank will need to be notified of your intention to convert the property to freehold ownership. The bank will need to consent to the conversion and agree to discharge the existing mortgage over the cross-lease title and register a new mortgage over the new freehold title. You should also update your insurance cover once the new titles have issued.
There are costs associated with converting your cross-lease title to a freehold title, including: survey costs, council consenting costs, legal costs, and the costs of completing any required physical works.
You should try and reach agreement with your cross-lease neighbours to share these costs given the benefit to all owners in converting their properties to the more desirable freehold titles. Cross-lease owners should weigh up the costs of completing the cross-lease conversion against the many benefits listed above.
How Cavell Leitch can help
Cavell Leitch has an experienced team of property law experts who can assist with your cross-lease to freehold title conversion. We have assisted a lot of clients with these conversions, so will provide the guidance and support you need to efficiently and cost effectively complete the required legal work.