The problem with cross leasing

If you’re involved with property cross leasing you‘ll probably be aware that this arrangement can have its fair share of complications. Cross leasing is when you jointly own the underlying freehold title with other owners, with the properties generally being owned separately.

Cross leased properties are registered against individual Certificates of Title, meaning that you retain exclusive rights of occupation and ownership of one property. However, the common areas (such as driveways or communal gardens) are part of the freehold, which belong jointly to all cross lease title owners.

While that’s how it works in theory, cross leasing is proving to be a headache for councils and lenders across the country. A recent report on stuff.co.nz told the story of a disgruntled cross lease owner who was unaware that a property on her land, the house next door to hers, was being demolished and rebuilt. Permission from all cross lease title owners is usually considered to be a requirement before any major changes are allowed, however she hadn’t given her consent.

When questioned as to how this was allowed to happen, Auckland Council stated they don’t generally check whether all cross lease title owners give consent before approving the building works. This rings true with other councils across the country, many of whom also don’t check for compliance before issuing building consent.

This complicates the arrangement, as it’s unclear what rights cross lease title owners actually have when it comes to the use of the land. And while unexpected building works can be frustrating for unaware owners, changes being made to the cross leased property can also jeopardise future sales.

Upon checking the Certificate of Title, specifically the flats plan, a prospective buyer may be surprised to see additions that have been made aren’t covered. If the flats plan is incorrect, the prospective buyer can cancel the agreement. Amending the plan at this late stage will hold up, and potentially cost you, the sale. You’ll have to get a surveyor to draw up a new flats plan and ensure the land is deposited with Land Information New Zealand. A new lease will also need to be created and registered. You do have the option to not correct the title, but again, this can mean the buyer won’t go ahead with the sale.

To try to avoid these issues, work toward having clear communication between all cross lease title owners. If issues arise, seek legal advice and mediation early on.