Issues With Cross Lease Titles
Are you thinking of selling your cross lease property? Are you considering purchasing a property which has a cross lease title?
You should be aware of potential issues with cross lease titles. If alterations or additions to the property have changed the "footprint" of your property on the plan attached to your title ("flats plan") these changes could mean your flats plan is incorrect. The standard ADLS (Auckland District Law Society) form of agreement for sale and purchase allows a purchaser, in certain circumstances, to object to a cross lease title on the grounds that the flats plan is not accurate. This is called "requisitioning the title" and allows the purchaser the right to cancel the agreement if the vendor does not agree to rectify the title.
Cross lease titles
Ownership of a cross lease property means you jointly own the underlying freehold title with the other owners, and you lease each flat (or house) to yourself and the other owners for (normally) 999 years. A "flats plan" is attached to the certificate of title and shows common areas, restricted areas and delineates the area of each flat. The common areas, for example a driveway, may be used by all owners as they are joint owners of the land. There will be a covenant in the lease that the common area is not to be used for any purpose other than access for vehicles and pedestrians.
The restricted areas provide each owner with a private area for their exclusive use such as the backyard, courtyard and gardens. The rights that the owner enjoys over the restricted area depend on the actual terms of the lease itself.
The "footprint" of each flat should be clearly shown on the plan. A prospective purchaser should carefully compare the flats plan with the actual buildings on the property to ensure that there have been no additions, alterations, or demolitions which are not shown on the flats plan. The alterations or additions may encroach either on to the common area or on to a restricted area and the owner has no leasehold title to them. Owners of cross lease titles should be aware that it is a breach of the lease to carry out alterations or additions which alter the footprint of the flats plan without obtaining the consent of the other owners. A new flats plan will need to be prepared.
Objecting to the title
A purchaser of a cross lease property can object to the title if the flats plan is defective. If alterations or additions have been made to the flat so the exterior dimensions have changed, the vendor will be unable to give a valid leasehold title to the alterations/additions and the title is defective. The standard ADLS form of agreement for sale and purchase allows a defective cross lease title to be requisitioned within 15 working days of the date of the agreement if the additional structure is enclosed and attached to the house – eg. a conservatory or additional room. Any other alterations or additions (such as a deck or carport) are not able to be requisitioned, but a purchaser can require written evidence that the other owners have all consented to the alterations or additions.
On receiving an objection notice from a purchaser, the vendor usually has three options.
The vendor can agree to correct the title. This involves having a surveyor prepare a new flats plan of the alterations or additions, obtaining local authority (Council) approval and having the plan deposited with Land Information New Zealand. Once the plan is approved and deposited, the vendor will need to surrender the existing lease and have a new lease of the altered or enlarged building executed and registered. This process is costly and relies on the co-operation of all owners who all need to sign the surrender and new lease. Settlement will need to be delayed until registration of the amended flats plan and lease has been completed.
The vendor can elect not to correct the title. This needs to be advised to the purchaser within 5 working days of the objection. The purchaser can then elect to either proceed with the agreement, or to cancel the agreement.
The vendor can enter into negotiations with the purchaser, which will often result in an agreement that the purchaser takes responsibility to correct the flats plan in return for a reduction in the purchase price.