How to: Cross-leases
What is a cross-lease?
A cross-lease is a scheme where the land and buildings are owned by the occupants of the buildings as tenants in common, who each join in the long-term leasing of a flat to its occupants. (If you own property with others as "tenants in common", your share of the property does not pass to the other owner or owners should you die, as it would if you owned the property as "joint tenants"; instead your share passes according to your will.)
Disadvantages of cross-leases
Potential homeowners should be aware of the many disadvantages of cross-leases. These include:
- Decision-making â€“ Most decisions require the unanimous support of all the owners of the cross-leased units; for example, decisions concerning common spaces such as driveways or car parking areas. If the proposed course of action isn't agreed to unanimously then either the proposal cannot proceed or there may be a lengthy arbitration process.
- Alterations â€“ Generally, cross-leases prevent an owner making any structural extensions or additions (such as a conservatory) to the buildings without the prior consent of all the other cross-lease owners. Further, the cross-lease plan would need to be altered to show the alterations; this would involve additional surveying and legal costs.
Converting from cross-lease to freehold title
A cross-lease owner might never experience those disadvantages, but it is worth considering the option of changing the title to the property from cross-lease to freehold ("fee simple"). Freehold gives the owner exclusive rights of use and enjoyment of the land, and is the form of title for most land in New Zealand.
To convert to freehold you will need to ensure, among other things, that you comply with the requirements of the district plan (for example, as to site area and distance between houses) and that a new survey plan is approved by your local council. You should consult a lawyer for further information on the requirements for converting to freehold in your particular case.
- Be aware of recent law changes: for example, in Christchurch the minimum section size has been increased in recent years. Thus many properties will no longer be considered large enough for a cross-lease. The Law Commission has recommended the abolition of cross-leasing as a form of land title. To be aware of any changes in the law regarding cross-leasing, you should consult a lawyer.