What is a Cross Lease?
A cross-lease is a type of property ownership where multiple parties own a single piece of land in undivided shares.
Each party has the exclusive right to use specific parts of the land (eg, your house and garden) and shared rights over other parts (ie, the shared driveway), as set out in a lease agreement that is registered over the title.
Cross-leases were originally created in the 1960s as a practical solution to the restrictions placed on subdividing land at the time.
Unfortunately, cross-leases have caused other challenges for property owners, including disputes between neighbours, lower property values, difficulty selling, insurance complications, and ‘defective title’ issues.
Benefits of Freeholding Over a Cross Lease
Converting your cross-lease title to a freehold (‘fee simple’) title can have significant benefits, including:
1. Increased Control
With a freehold title, you have complete control over your property. This allows you to make additions or alterations to your property without needing to get written consent from your neighbours or needing to re-survey the cross-lease ‘flats plan’ to correctly show any changes you (or a previous owner) have made.
2. Avoiding Defective Titles
‘Defective titles’ occur when cross-lease owners have made additions or alterations to a property without updating the cross-lease ‘flats plan’ to correctly show the changes. Cross-lease properties with defective titles can be harder to sell as purchasers don’t want to take on the additional risks or costs associated with fixing the title issues. Banks and insurers often place greater restrictions on lending applications for defective cross-lease properties for purchasers. Once you have a freehold title, you can avoid this costly issue altogether.
3. Reduced Risks
Cross-lease ownership can be complex and involves shared responsibilities between neighbouring owners. By converting your cross-lease property to freehold, you can reduce these risks and avoid disputes with your cross-lease neighbours over shared maintenance, insurance, and use of common areas.
4. Increased Value
Freehold properties are generally considered to be more desirable and consequently more valuable than cross-lease properties because you have full control over the property. Potential buyers do not need to worry about the complexities of cross-lease ownership or any defective title issues. This can make freehold properties easier to sell.
How do I Change my Cross-Lease Title to Freehold?
Firstly, talk to your neighbours (everyone else on the cross lease with you) because their properties will all have to be converted to freehold at the same time.
This process may require some negotiation with the other owners to ensure that everyone is comfortable with the process, and you will have to reach an agreement about how the costs will be shared amongst you all.
Once you have agreed you will need to engage a surveyor to obtain subdivision consent and draw up the new survey plan to define the boundaries of the new fee simple titles.
Once you have obtained a subdivision consent and survey plan, you will need to complete any physical works required by the Council as set out in the subdivision consent.
For example, making alterations to the driveway, or installing infrastructure for other shared services such as drainage. Once the works have been completed, you will need to obtain the Council’s sign-off to proceed with the conversion.
As we always suggest, talk to your lawyer before making any decisions. There will be legal costs, plus of course surveyor and costs for any physical works.
If you have a mortgage you will also need to get your bank’s consent prior to starting the freeholding process.
Finally, once the process is complete you will need to advise your insurance company as it may affect the insured value.
Lisa and Steve Stone
Elite Agents for Ray White
Thestones.co.nz