Who needs a cross lease? If you’re the owner of a cross-leased property, chances are you’d prefer a fee simple ownership structure.
The Property Institute of New Zealand estimates homeowners of cross-leased properties can suffer value losses from 7 to 18 per cent. Conversely, converting the title to fee simple can add value to the property and make it easier to sell.
In effect each cross lease owner holds a share of a joint fee simple title, and a ground lease for the portion of the property occupied. Cross leases were popular way to subdivide properties in the 1970s.
These days a cross lease can be a red flag for buyers who don’t want the hassle of having to get permission from neighbours to make changes to their property.
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There can be fish-hooks when it comes to selling cross-leased properties. For example, sometimes alterations aren’t properly approved in writing by all landowners, or the property hasn’t been updated and resurveyed, says the University of Auckland’s Michael Rehm.
That can mean the cross lease title is defective, which can prove an impediment to sell.
Rehm adds that it makes sense for the council to turn the city’s 61,000 dwellings sitting on inferior cross lease titles into market-preferred fee simple properties.
Every year many cross leases are converted to fee simple, says Mark Finlayson, a director at Envivo. “The process is fairly well supported at council,” he says.
None-the-less, the conversion is in effect an entire subdivision process, so there can be some hitches. All of the owners in a cross lease must agree to the conversion and the process can be costly.
Your surveyor, planner, and, where necessary, civil and/or structural engineer will review engineering and planning issues, manage consents, surveying, engineering, if necessary, and work with your lawyer.
“The first thing is to get the neighbours on board,” says Finlayson. Envivo’s civil engineers then review and report on infrastructure, including sewage, water supply, storm water drainage, earthworks, power and telecommunication services as well as any extra civil engineering services such as access, including roads, footpaths, and driveways.
They then prepare the resource consent and Assessment of Environmental Effect and then a land transfer survey once any council conditions are met.
“Because it is a subdivision (you can be) required to bring things up to current standards,” says Finlayson. “That is where there can be fish-hooks.”
A common fish-hook issue is the physical or legal separation of services. When the original cross lease was set up it’s likely that storm and waste water services were simply hooked into the existing home’s pipes, says Finlayson.
To comply with current laws the homeowner may have to have a new sewer pipe laid and in some instances get easements for that pipe to cross the neighbour’s property.
Likewise there may be easements needed for water, power, gas and telephone/internet services Joint driveways may need to be brought up to standards required by today’s laws.
For some properties there is a need to upgrade walls, says Finlayson. Because a new legal boundary is being created, the two homes may need to have a fire-proofed wall separating them.
Finlayson cites the example of sausage block brick and tile flats. While the adjoining walls are typically brick, the fire protection between units in the roof space may not be up to current standard. “It requires a fire engineer to do a report and it requires gibbing (with fire-rated board),” he says.
Most times the process goes without a hitch, says Finlayson. Occasionally, however, there can be issues with the council, such as site coverage.
One of the cross-leased homes, for example, may have been extended, resulting in an infringement of coverage rules. To solve this council may insist on adding a notice to the title limiting the coverage of the other homes concerned.
Finlayson says Auckland council has eased up on some of the requirements for converting cross lease to fee simple. Where there is a problem Envivo’s engineer can liaise with the council to find solutions, says Finlayson.
Once the council is happy it’s over to your lawyer to lodge the documents with Land Information New Zealand and order new certificates of title.
All of this comes at a cost, usually around $20,000 to $30,000, says Finlayson, which covers fees for surveying, council, LINZ, and a solicitor and any physical alterations needed.
Around 50 per cent of the time one of the home owners will pay the entire cost rather than splitting it with neighbours, says Finlayson.
Sometimes the party who has paid the fees will get some of the cost back. They may, for example, get a greater share of the driveway in the subdivision. Typically the process takes six to eight months, but it can take up to a couple of years.
