Clear Realty Real Estate Blog

I thought this would be a good topic to focus on today, simply because I (and some of my colleagues) have had a number of queries about titles on different properties. The most common question we get asked is what’s the difference between a freehold title and a cross-lease title. Not only that, but often when we are marketing properties with a cross-lease title we are often asked “is this leasehold?” My intention today is to guide you through the difference between a fee simple and cross-lease title and show you what you need to look for so to both identify and understand the implications of each title.

Estate in Fee Simple

Drake, Lay, Varnham & Thomas, 2000 state “The law relating to the holding of most land in New Zealand is based on English law. As a result the inherited doctrine that the Crown is the ultimate owner of all land remains…ownership of an estate in fee simple is not limited by time and continues indefinitely. Such ownership carries with it a bundle of rights representative of absolute ownership of any property. These are the right to dispose of it by will, by gift, or by sale and generally do with it whatever the owner wishes. However there are statutory limitations (e.g., use of land is controlled by the Resource Management Act, 1991 and the sale of land to overseas persons by the Overseas Investment Act 1973.”

Click here to see an example of a Freehold Title

In practical terms, a freehold title enables the property owner to (within reason) do what ever they like with their land except where the appropriate permission is required from the local authority/local council. The most common type of permission is consents which are sought by freehold owners from their local council for additions/alterations to a property.

Cross Lease Title

What is cross lease? The consumerbuild website (cited below) defines it as “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.”

To really understand a cross lease title you need to understand why they came about. Drake, Lay, Varnham & Thomas, 2000 state that “the rationale behind a cross lease system of land development was that the creation of cross-leases was not considered to be a subdivision under Municipal Corporations Act 1956 or the Local Government Act 1974) and was therefore immune from the onerous local body (council) requirements for subdivisions. The cross lease system was therefore particularly useful for small developments. The advantage was removed by the passing of the Resource Management Act 1991. The act includes “cross lease” within its definition of subdivision (s 218), bringing cross lease developments within the requirements of other subdivisions. This, together with the moves made by many territorial authorities to discourage cross leasing by imposing other more stringent criteria, means that the number of new cross lease developments is reduced.”

It is really important to note that cross lease does not mean freehold! This is certainly one of the most common misconceptions of a cross lease title. It’s very easy to see why people get confused when you look at a cross lease title.

click here to see an example of a cross lease title

As you can see above the word “leasehold” tends to throw a lot of people. The reason leasehold is mentioned on the title, is that it relates to the delineation and/or apportionment of the land for a lease period of (usually) 999 years (as mentioned above in the definition). None of us will be around in 900 years time, but I image when that day comes they’ll roll the lease over, or change the title to a freehold title for each property on the crosslease. The futurist in me suspects that in 900 years time, they’ll be converting most land in to high rise apartments!

The implications of being on a cross lease are that:

1) When you are making major structural changes to your property or making changes that could affect the flats plan on the certificate of title, then as well as approaching the local authority, you’ll need to approach your neighbours to make these changes, and also obtain their written permission

2) You need understand the memorandum of  lease which usually accompanies these titles and understand your rights and obligations under this document. Some memorandums (of lease) cite that the crosslease shall have no pets (I’m not kidding) so it pays to read the fine print.

If you’re keen to find out more then I recommend visiting the consumerbuild website for more information.

Thanks for reading and I hope that cleared a few misconceptions up. Any questions? I am happy to answer as always.

Andrew Simich