Property – Is your title defective?

Many Hibiscus Coast homeowners on cross lease titles are unaware that their title could be defective – usually not until they come to sell their home.  

Once considered a cheaper way to subdivide property, until the Resource Management Act of 1991 came into effect, cross leases are unique in that all owners of every flat or house own a share of the entire property, then lease defined parts of the land back to the individual home owners, or lessees.

These leased areas, which include the footprint of the home, any existing attached decks or garages and any exclusive use areas, are detailed at the time of the cross lease on the Flats Plan which is registered with Land Information New Zealand. Other rights, such as maintenance of common areas, are also documented on the title.

Over time, subsequent owners of each flat sometimes extend, add or change a deck, build a conservatory (including above an existing deck) or even add a garage, and physically alter the exclusive use areas but are unaware that these changes could make the title defective. Even gaining building consent for the works does not avoid the risk of a defective title as the Council is not responsible for ensuring the correct legal status of that title.

Any changes to these leased areas require the consent of all the other owners of the land. A new survey of the exclusive use areas is required and a new Flats Plan issued, which, of course, incurs legal and surveying costs. If your neighbours are difficult to deal with, correcting this situation could be more troublesome than expected.

As a purchaser of a cross lease property, part of your due diligence should be checking the Flats Plan for legality.
This is done as part of a registered valuation, or should be investigated by your conveyancing lawyer if no valuation is completed. It involves searching the title and checking the exclusive use areas that are currently in use match those as detailed on the Flats Plan.

As a seller, a defective title can be used by a purchaser to negotiate a lower price, in expectation of incurring future costs to fix this problem.

Sometimes lending institutions may also refuse finance for a cross lease property with a defective title, especially when the borrower is highly leveraged.

Whilst your current neighbours may be quite amiable and are not concerned about any issues identified, the same cannot be guaranteed with future owners of adjoining properties and the only true safeguard is to fix the defective title or look to convert the cross lease property to freehold. In either instance, or if you are concerned you may have a defective title, it is a good idea to seek professional advice.

Hibiscus Matters welcomes Vicki Phillips to our new Valuation column. Vicki has more than 11 years experience as a Registered Property Valuer and holds a First Class Honours degree majoring in Valuation & Property Management. She moved with her family to Orewa in 2002, and runs her business on the Coast, Valuation Rodney, covering the North Shore and Rodney districts. The column will run bi-monthly.