What is a Cross Lease ?

History of cross leases

Cross leases were first created in the late 1950s to get around subdivision restrictions. By the 70s standalone buildings were permitted to be leased.  These days the cross leases are captured under the Resource Management Act 1991 as a subdivision, so are no longer commonly used. 

A cross lease is a lease of a building or part of a building, whereby you own an equal share (with other lessors) of the fee simple land and lease your ‘flat’.  It is common practice to now show ‘restricted use areas’ and ‘common areas’ on deposited plans. 

What to look for on a cross lease titles flats plan

Look over the record of title and relevant deposited plan, does this match your viewing of the physical property and google earth?  If you find the ‘flat’ outline differs from the flats plan within the deposited plan, this can pose a real problem as the owner of the property.  When purchasing a property your bank or lender may also find a defective title to be an issue for your lending.

The lease boundaries are noted as to external faces of the flat’s exterior walls and roof (unless stated otherwise). What is leased is the flat at the date the lease was granted.

Therefore, any changes to the ‘flats’ horizontal or vertical dimensions, without an updated flats plan, creates a defective title.  Examples include, conversion of attic into bedroom, conservatory built over porch, renovation, and extension of kitchen.

Memorandum of Lease

This is the lease agreement with the other lessors on the fee simple title. The lease needs to match areas shown on the deposited plan and what is physically on site.

This document states the obligation each flats owner has in relation to:

• Quiet enjoyment clauses

• Alteration clauses

• Maintenance clauses

• Insurance clause

• Dispute resolution clauses

The major practical differences between a fee simple title ("standard title") and a cross lease title is that the owners of cross lease properties must follow the terms of their leases, often overlooked is  alterations being carried out without first obtaining neighbours consent and failing to be incorporated in flats plans.

If you do not obtain consent, the other owner could force you to have the alterations removed, and as discussed earlier the flats plan must be redrawn to redefine the new buildings.  Some leases also prevent the erection of any buildings, structures, or fences without the prior written consent of the lessors.

But what about not being able to withhold reasonable consent?

Consideration must be given to the benefit of the party seeking the consent and detriment to the party giving the consent, could this consent impact the consenters ability to future renovations?

Other issues, some older cross lease titles do not have exclusive use areas, this means legally, each lessor has the right to enter all areas of the fee simple land, excluding the leased areas (being the flats).

How do you update a flats plan?

Updating the Flats Plan involves council consent and fees, surveyors’ fees and new title documents (including easement instruments) which can be a very costly exercise.  If you were considering updating your flats plan, it would be worth exploring a conversion of the cross lease title to a fee simple title especially if your other cross lease owners agree to splitting the costs.

If you are still awake, time for some fun… consider some of these examples.

As an owner of the property, do they seem Okay to you, or would you need just your neighbours’ consent, or your neighbours’ consent AND to update the flats plan?

• Wooden deck built over existing concrete deck in an exclusive use area?
  You would not need to update the flats plan but would require lessors consent.

• Conservatory built over front porch in an exclusive use area? 
  You would need to update the flats plan and obtain lessors consent.

• Carport added to the side of flat, with no exclusive use area?
  This would be built within the common area and therefore require a new flats plan, Lessors consent or removal.

There is a permanent condition within the ADLS Agreement for the Sale and Purchase of Real Estate Tenth Edition which addresses the issues of defective titles, that is why it is so important to know what you are looking for prior to confirming the contract.

We are here to help you understand the implications and your obligations as an owner of a cross lease property (of which I am).  Cross-leases are not all that bad, for instance cross lease titles give the owners the ability to control the other neighbouring cross lease property with the covenants in the memorandum of lease.

Want more? I have attached a copy of a Memorandum of Lease and an example of a letter of consent from a Lessor (cross lease neighbour).

Jo Shannon is the founder of Nest legal & conveyancing. A Conveyancing Practitioner Jo lives with her family in the beautiful Bay of Plenty. Apart from all things property, Jo also loves perma-culture gardening, walking round the Mount and nice wine.