Freehold vs Cross Leased Properties
As a real estate agent I often get asked what the difference between cross lease and freehold (fee simple) properties are and, if it does make any difference.
There are several different types of land ownership in New Zealand. Whether you are new to real estate or are looking to buy property it is important that you understand what each type means.
On Auckland’s Hibiscus Coast there are three types of land ownership that you may come across whilst on your search new home. They include;
- Fee simple
- Cross lease
- Unit title
Fee Simple and Freehold Titles
Freehold technically refers to land that’s free of encumbrances and these days fee simple and freehold are generally used to mean the same thing.
Fee simple ownership is the highest form of land ownership available in New Zealand. Practically speaking, it’s because fee simple or freehold ownership allows land owners to make changes to their land and homes without the consent of neighbours and without needing to change the title, as long as the changes are allowable under local planning laws and the Resource Management Act.
Fee simple owners can also register covenants against the certificate of title. A freehold owner might subdivide a property but preserve their privacy or ensure that they retain the view from their home by preventing certain trees from being removed or by restricting the type or size of buildings that can be built on the subdivided block.
Cross Lease Titles
A cross lease is where a number of people share in the ownership of a piece of land (as tenants in common which means they can sell, or pass on their share in their will). The homes that they build on the land are actually leased from the other land-owners. The houses are usually flats or townhouses. For example, if you purchase a flat in a three flat development that is a cross lease, you will become the registered proprietor of:
- An undivided one third share in the land and buildings (as tenant in common in equal shares) with the other owners of the other two flats, and
- A long term lease, from all three of the tenants in common (including you), for your particular flat.
If you are looking at cross leased properties, please take particular note of the following points that you should be aware of:
- The rights of the owner depend on the terms of the particular lease, which has usually been arranged by a developer who built the development but now has no further interest in it.
- The usual term of a cross lease is 999 years, whereas the physical or economic life of the house will be a lot shorter.
- You must comply with the covenants set out in the lease – if you fail to comply, the other flat owners may be able to compel you to sell your undivided share in the fee simple title.
- You will usually need to get the unanimous support of all the owners of the cross leased homes to make any kind of decisions for example, decisions concerning common spaces such as driveways or car parking areas. If agreement can’t be reached it might involve a lengthy arbitration.
- When homes are altered, unless the cross lease and building plans are changed, the original cross lease will not include the alterations without additional surveying and legal costs. Furthermore, you will need to get the agreement of the other lease-holders before you can do the work.
- Most cross lease owners believe that their title is as good as an ordinary freehold title without understanding all the implications.
Unit Titles
Unit titles were created (under the Unit Titles Act 1972) to allow people to own an apartment in a building and to allow for multiple ownership of the common spaces and facilities, such as driveways and lifts.
A unit title can be bought and sold, or leased or mortgaged. It is made up of three components:
- Ownership in the particular units (which can be the apartment and the car park).
- An undivided share in the ownership of the common property.
- An undivided share in the ownership of the units if the unit plan is cancelled.
The unit owners own the common property as tenants in common so that when the unit owner dies, their share does not revert to the other owners but passes on to someone else, according to the terms of that person’s will. Each owner’s share in the common property is proportional to their ‘unit entitlement’.
A body corporate arranges the upkeep and insurance for the building, paid for out of money levied on the owners.
Do you have a real estate question that needs to be answered? Send me an email at anita.dobson@harcourts.co.nz or simply comment below!
Source: www.consumerbuild.org.nz
Anita Dobson – Harcourts Whangaparaoa