Introduction
Cross-lease titles are a common property type in New Zealand. Recently we encountered a situation where a property appeared to operate as part of a cross-lease development, but the title did not reflect the legal structure that should have been present.
Cross-Lease Structure
Under a usual cross-lease structure, the owners own the underlying land and lease their flat from the other owners. The title sets out the flat plan of the property, and a lease is then registered on each title which generally sets out the location of each dwelling, each owners property exclusive use areas, and the common use areas.
Without a flat plan or lease documentation on the title, each owner’s rights and obligations would not be clear and could lead to disputes in the future.
The Situation
In the situation we encountered, the title for one property was recorded as a fee simple interest only. However, the neighbouring property’s title contained a cross-lease interest and referred to a lease that classified part of the land as a future development area. The memorandum of lease specified that when a second dwelling was constructed, a new flat plan and lease could be registered, and new titles would be issued to reflect the completed development. The second dwelling had been built many years ago, however, the lease and flat plan had never been registered to update the title. This meant that the physical dwelling existed but the documentation that defined the owner’s rights did not.
It could be argued that the neighbouring owners have accepted the arrangement for many years therefore there is no issue. However, the absence of a lease registered in the title can create several concerns.
Without a lease being registered on the title alongside an amended flat plan, there may be issues regarding exclusive use areas, common use areas, and the rights of each flat owner.
Although there have not currently been any arguments as to the currently flat or the use of restrictive use and common use areas, there is nothing in place to guarantee that future owners will not do so and without the rights being clearly defined, disputes may arise in the future.
While the above-mentioned situation creates legal issues, it can also create difficulties with lending against the property.
In this situation, concerns were raised by the lender regarding the incomplete cross-lease structure. The lender was unwilling to provide unconditional approval until the title issue was rectified and a new title was issued to show the new lease and flat plan.
In addition, where a dwelling is not properly recorded on a flat plan or lease, there may be issues regarding insurance and rebuilding in the event of natural disasters like earthquakes.
Can this situation be fixed?
Although the above situation can cause legal issues, it can be rectified. Rectification of this includes:
- Engaging a surveyor to complete the new flat plan
- Obtaining any required consents
- Registering the new flat plan and lease documentation incurring all costs associated with this work and any costs incurred by the neighbouring flat owners, and
- Issuing amended title.
While this process can be expensive and time consuming, it is essential to have this work completed prior to settlement to ensure the purchase is not taking on substantial costs to complete this themselves in the future.
Conclusion
When purchasing a cross-lease property, it is important that the title, lease documentation, and flat plans are reviewed carefully to ensure that these documents accurately reflect what exists at the property.
The team at Absolut Legal would be more than happy to assist you with reviewing these documents to ensure you are not taking on any issues that may be costly or cause you issues with resale in the future.
