Buying a Cross-Lease? What you should know...

Have you been searching for your dream property but keep finding properties labelled as ‘cross lease’ and you’re not sure what this means? You’re not the only one. Cross leases are one of the more complicated forms of property ownership in New Zealand, with lots of people struggling to understand what buying a cross lease property means for them. The following article will set it all out for you.

What is a Cross Lease?

If you buy a cross lease property you become one of the owners of an undivided freehold plot of land. Each cross-lease also purchases a leasehold interest in respect of the dwelling that they occupy. These leases are usually for 999 years and will sometimes outline an exclusive area of the underlying freehold land that you can use as well as any shared areas of the property. This means that your house or unit is set apart just for you, but you can also have access to shared areas (like a driveway, garages, or a common garden area) with the other owners. 

Example (see picture)

Nadia, Mikayla and Hayley own three cross lease properties situated at 100 DTI Street: Flat A, Flat B and Flat C.

Nadia, Mikayla and Hayley own all the underlying land at 100 DTI Street, with each owning a 1/3 share in the land. This means that each of them owns a one third share of the underlying land, but not any specific part of the land.

Nadia, Mikayla and Hayley (collectively) lease out flats on the land to themselves individually. Collectively as a group they lease Flat A to Nadia, Flat B to Mikayla and Flat C to Hayley.

Each of these leases gives the owner of the flat exclusive rights to the use and enjoyment of that flat, with equal access to shared areas. 

It is important that your lawyer checks the lease documents of each lease to determine whether there are any exclusive use areas. For example, a lease may state that Flat C has an exclusive use area for the owner of Flat C. This means that Hayley can use that area, without Mikayla and Nadia using it. However, some leases do not refer to exclusive use areas (as shown for Flat A and Flat B) – this is a very common defect. This means that Nadia and Mikayla have exclusive use to their flat, but not any part of the land.  Therefore, they can use any part of the land. Issues that may arise from this include if Nadia had a washing line outside of her Flat, but Mikayla frequently used it. This annoyed Nadia but Mikayla was in her right to use the washing line, as its not for either party’s exclusive use despite it being outside of Nadia’s flat.

Obligations to the Other Owners

The Cross lease document usually contains a requirement that any structural changes to the property or shared areas must be agreed upon by all the owners. This means you might need to get the other owners’ consent before making any changes to the exterior floorprint of your dwelling – even for things like building a deck or putting up a fence. If Nadia decides she wants to build a deck to enjoy summer BBQ’s, she will need to seek the consent of both Mikayla and Hayley to do so, and then further she may need to obtain building consent and update the flats plan and title to show the deck.   This would involve a re-survey of the buildings on the land, and consent of the other owners and mortgagees to the new plan.  Often owners are not aware of this requirement and don’t follow this process when undertaking renovations.

While most of us have great relationships with our neighbours we are neither stranger to the TV series Neighbours At War. While this TV show can be comical at times, it highlights the importance of cross lease owners maintaining good relationships with each other. There are also often covenants (terms and conditions) in the lease documents that set out all the obligations each cross-lease owner has to each other. These obligations usually include quiet enjoyment of the property, to keep the property free of rubbish, and to maintain common areas such as driveways and lawns. There can also be restrictions on household pets and subleasing. It’s really important that you understand what these obligations are and how they may impact your use and enjoyment of the property.

Selling a Cross Lease

Because of these complexities, buying and selling a cross lease property requires extra care, it can complicate the sales process if there are problems with the flats plan, in particular the exclusive use areas and any alternations not being recorded.

How DTI Lawyers can help!

If you are interested in making an offer on a cross lease property or if you have purchased one, please reach out to our specialist team of lawyers. We can review the title documents for the property and look at all the registered interests including the lease documents and any covenants or easements. We can then go through all these documents with you to confirm whether there are any defects, and to give you a clear understanding of your obligations to the other cross lease owners and your rights and restrictions of the use of the property.