Making Sense of Cross Leases

Cross leases are a complicated form of property ownership in New Zealand but don’t knock them until you understand them!

These were once a very popular way for landowners to achieve sub-division without the costs and hassle of complying with formal subdivision laws. However, an amended Resource Management Act 1991 brought the cross lease “boom” to a halt. As a result landowners are now obligated to comply with official subdivision processes.

What is a cross lease?  

A cross lease is where multiple individuals own an undivided share of land. Each leaseholder has a share of the land in common with the other leaseholders. Thus, if a section is divided into 4, the fee simple or “ownership” is held by 4 people who each have an undivided share in the land.

Additionally, each leaseholder is granted a registered leasehold estate of the certain area/dwelling occupied by them. This gives each leaseholder the exclusive right to occupy and enjoy separate segments of the underlying section, or freehold title.

Although leaseholders enjoy an exclusive right to the dwelling, their ability to enjoy, use and develop the property will be subject to specific obligations and requirements typically set out within the Memorandum of Lease. Including additional requirements in respect of ‘common areas’ such as driveways and shared grounds.

Memorandum of Lease.

Ok, so… what is a Memorandum of Lease?

Technically, it is an alert to third parties that there is a leasehold interest incumbering a piece of real property. The particular instrument is recorded on the title to the property, and sets out the tenant’s rights and interests within the property. It also includes a description of the leased premises and names of parties and the term of the lease.

Loosely speaking, it is a recorded instrument that contains all the rules that owners in the cross lease must adhere to, obligations and requirements of cross-lease members and any relevant covenants or restrictions.

Restrictive covenants are quite a common feature of cross leases. Some of the most common include matters related to:  

  1. alterations of buildings;

  2. leasing the building;

  3. maintenance of the flat or building;

  4. keeping pets (particular pets which “may cause a nuisance”); and

  5. comprehensive insurance.

If you wish to carry out any of the above, it is likely you will have to consult the other leasehold members prior to acting.  

Buying cross lease property?

In a nutshell, buyers should undergo a series of enquiries into the property before purchasing to truly understand the nature of the cross lease and their obligations under it.

The most common issues we see with cross lease sections arise as a result of:

  1. poorly drafted Memorandum of Lease;

  2. poor relations with neighbours; and simply

  3. misunderstanding the obligations and responsibilities of a tenant.

Possible steps to take to remedy these issues include:

  1. clarifying the boundaries for exclusive use and common areas;

  2. understanding the terms and limitations of the lease against your intended use;

  3. understanding your obligations under the lease;

  4. checking that your cross lease title includes a plan of the footprint of property; and

  5. acquiring a Land Information Memorandum (LIM).

What about selling?

For vendors, if you have made any changes to the dwelling this will need to be accurately recorded on the lease plan. To mitigate against the risk of a purchaser cancelling the agreement, it is important to ensure that the dimensions of the property do accurately reflect those recorded on the flat plan attached to the title.

Still have questions?

While this might seem unfamiliar and overwhelming, we advise you contact your legal representative to guide you through the process.

For any further clarification or advice related to the content of this blog feel free to get in touch, we offer free upfront consultations.

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