Cross lease titles - an overview

What is a Cross-lease title?

Cross-lease is a form of subdivision dating back to the 1960’s and was common up until the mid 1990s. It was popular as it was viewed as a simpler and cheaper alternative to freehold subdivision and it got around the subdivision rules in the District Scheme (pre Resource Management Act) because it wasn’t defined as a subdivision until the Resource Management Act in 1991.

The nature of a cross-lease subdivision is where a number of people own shares in a single piece of land and have leases with the other owners to allow them to occupy and use certain portions of the land. These leases refer to a plan of the buildings and land which is commonly called a Flat Plan. The resulting title is referred to as leasehold and usually had a term of 999 years.

The flat plans vary in how they depict the buildings and land. Generally they will show the outline of the building and the extent of any exclusive use and common land.

What are the issues?

The Flat Plan shows the outline of a building at a moment in time. If the exterior of the building is altered and the plan is not updated, then the title is considered to be defective and needs to be rectified. Common alterations that trigger a defective title are conservatories, garages, fencing, large areas of decking / pergolas and more recently, post-earthquake rebuilds.

The process of rectifying the title involves a new subdivision consent from council, a new flat plan and new legal registrations. Combined costs can regularly reach up to $10,000. Commonly, a purchaser of a property will require this to be done before they will confirm the sale.

What can I do?

There are 3 options if you have a defective title:

1. Do nothing and negotiate a reduction in the purchase price if the property is for sale. This doesn’t address the issues and just defers it to a future time.
2. Rectify the title. This requires subdivision consent from Council and updates the cross-lease title and plan. Any future alteration will cause the title to become defective again and hence it will need to be rectified again at additional cost.
3. Convert to freehold. This also requires a subdivision consent from Council, and a new legal survey, but it converts the titles from cross-lease to freehold. All the cross-lease titles on the site must be converted so the costs can be shared amongst the landowners by negotiation. While costs vary, the typical range is between $15,000 & $20,000. There is often an increase in the perceived value of the property as a result.