Specialty subdivision expertise, with fixed fees for certainty
Do you have a cross lease property? Or are you looking to buy one? They are a rather strange invention, so read on to find out a bit about them...
Basically, cross lease titles were invented by a lawyer in the 1960s as a loophole to get around subdivision restrictions. They only occur in New Zealand, and the idea behind them meant that if the underlying land wasn't split up, then it wasn't a subdivision and not subject planning restrictions. (This loophole got closed with the introduction of the Resource Management Act in 1991, but this background helps explain why cross leases are the way they are.)
When you own a cross lease, you don't own your property separately. You own the underlying land jointly with your cross lease neighbours.
When buying a cross lease, we often tell people that they need to stress the word "lease". You basically rent the building (the 'flat') from your cross lease neighbours (and yourself), and you are their tenant. (You are also your own landlord in common with your neighbours and they are your tenant.)
It helps to think about it this way when you are thinking about restrictions that cross leases have. So, for example, if you are a tenant, you can't make major changes to a property you are renting without your landlord's consent. A cross lease is pretty similar to this (but has a higher threshold for what needs landlord's consent - this is where the exact wording of your lease is relevant).
Just because an alteration has Council consent doesn't mean it's got the required landlord consent. The Council doesn't get involved in disputes between co-owners, and, under a cross lease, you are a co-owner with your neighbour. People warn about buying with friends and the dangers of doing a co-ownership agreement, but effectively that's what you are buying as a cross lease.
These restrictions are why cross leases are (or should be) cheaper than buying a freehold (fee simple) property. We strongly believe you should not pay the same amount for a cross lease - you are not getting the same rights. But they can be a great way of getting into home ownership as long as you are completely happy with the restrictions.
FOR A NO-OBLIGATION CHAT OR QUOTE:
What are the advantages of converting?
There have been numerous studies by the Law Commission, the Property Institute of New Zealand, the Property Department of the University of Auckland Business School, and the Auckland Council, all of whom conclude that conversion of cross lease properties to fee simple properties are desirable for the homeowner for many reasons.
A few of those reasons include:
Increase in market value: A discount factor of 7% and 10% applies to cross lease properties, according to a study by the Department of Property at the University of Auckland Business School. This means that, for your average cross lease property in Auckland with a value of $1m, converting to fee simple would give a value uplift of $100,000. That is a 500% return on the standard conversion costs.
Increase in purchaser pool: Cross lease properties have a much reduced purchaser pool compared to fee simple properties. We are aware of real estate agents who have informed us that it is estimated that 30% of potential buyers will not buy a cross lease. In addition, we are aware of real estate agents who will negotiate a commission with many prospective vendors, but will not do so when a cross lease is involved, because the time to sell is so much greater, the work required of an agent is greater, and there is a much higher chance that the sale will collapse at the conditional stage.
Ability to alter your house: Even minor building work can require consent under the lease. You may not have any current intention to carry out work to your house. But circumstances might change, and even altering steps at a front door to a ramp for accessibility reasons could, under a cross lease, need not only your neighbour's consent, but also the cost of a further flat plan, without which your title would be defective. It is for this reason why there is quite rightly such a value differential between cross lease and fee simple properties. The ability to do this work without a further $20,000 cost and without the need for permission is extremely valuable.
Removal of restrictions on the ability to use the property: A cross lease has restrictions in its use that are not present in a fee simple property. For example, that, under many leases, your neighbour is able at all reasonable times to enter your house to inspect its condition. This is something we find that most cross lease owners find objectionable. Similarly, under your lease, you may be prohibited from having any cat or dog that may cause a nuisance to your neighbour. (As a note, if you would like to convert, but want to keep these restrictions, we are able to do this with a land covenant on the property. This gives you all the other benefits of a fee simple title while keeping the restrictions.)
Unlock subdivision potential: Once you have converted, you can access all the usual benefits of a fee simple title. So if you are permitted to subdivide under the relevant planning rules, you would be able to do so.
Reinstatement in a disaster: We have worked on many cross lease issues arising from the Canterbury earthquakes from 2010. The complexity surrounding cross leases in such a situation is such that the repair and rebuild of those properties did not even commence for 6 years after the earthquake. In particular, developments in building and land movements meant that it was impossible to rebuild the houses back to the flat plan and still comply with the current building code. This put cross lease owners in the position where they needed to be their co-owner’s permission to their rebuild, and to update their flat plan, again at considerable cost, neither of which were necessarily covered by insurance.
At the same time, the homeowner did not have the ability to choose not to rebuild and to instead take the insurance proceeds. The lease requires that the property is rebuilt to the satisfaction of the neighbours, not the satisfaction of the particular flat owner themselves. This left many under-insured homeowners in an incredibly difficult breach position, one that I suggest many cross lease owners would be in today, with the removal of replacement insurance policies and the escalating costs for building.
Even if your location isn't in a high risk earthquake zone, exactly the same issues arise in relation to localised disasters, such as a fire destroying the property.
Our approach to pricing
We offer fixed fees, and we don't charge extra for office services like faxes or photocopying. (We wouldn't expect to have to pay for using cutlery at a restaurant.) We let you know the all-up inclusive cost of the transaction, including the Landonline fees, right at the start, so that you can budget accordingly.
The legal fees for a cross lease conversion depend on a number of factors, from the ownership structure of the property, to the covenants and other instruments on the title, and whether you have one (or more) mortgagee involved.
Typically, the legal fees for a standard 2-flat cross lease conversion could be as little as $2,600 plus gst and Landonline fees per title.
Cross lease titles:
what are they, and why should you think about conversion if you have one
What if I didn't get consent (a "defective title")?
If there's been a change to your property that you haven't got proper consent for, and updated your title, this can be an issue. Your title is considered "defective" because you have a change to the building you didn't have a right to make. Worse case, your cross lease neighbours can require you to put the building back the way it was previously. Even without this, this can cause issues with your insurance, any bank finance, the value of your property, and being able to sell your property at all.
To fix this, you need the consent of your neighbouring owners. We can help you with this, and this can take two forms:
Updating your title with an updated flats plan.
Converting your title to a fee simple title.
It used to be that updating a flats plan was a simple process just requiring a variation to be signed. Unfortunately this hasn't been the case for about 10 years, and now the process to update a flats plan and the process to convert to a fee simple title are very similar.
It has also become easier to convert to fee simple than it was in the past. An Environment Court ruling has limited the conditions a Council can impose on converting, and made it more straight-forward.
If you are considering fixing your title, we are happy to help update a flats plan, but encourage you to consider converting for the reasons set out below.