Written by James Leggat - Solicitor (Property)

Cross-leases were first conceived in the 1950s as a way to circumvent the subdivision restrictions at the time. It wasn’t until the 1970s that stand-alone buildings were able to be leased and their popularity exploded at the same time as mullets and shoulder pads. However just like those luscious locks and shoulder padded tops, the benefits of these 1970s phenomena have well and truly run their course. Cross lease titles are now quite problematic, and are likely to continue to be phased out in the future. However cross-lease titles are still very common with residential property in New Zealand. Following attendance at an NZLS CLE seminar hosted by Joanne Chilvers and Anthea Coombes on cross-lease titles, there are useful practical warning signs to watch out for when confronted with a cross-lease property.

The legal basis behind a cross lease is that owners of the cross lease title  all own an undivided share in the fee simple of the property. But they also take on a leasehold interest (usually for 999 years) for a building and often a specific area that is for their exclusive use. There may also be common areas noted in the lease.

Is it defective?

As most people in the property industry know, any structure on the property that does not appear on the flat plan should be a warning flag. But the ADLS agreement limits what a party can actually requisition on a cross lease title under clause 6.3 of the agreement.

Clause 6.3(1) provides that a cross-lease title can be requisitioned in two circumstances:

Firstly, “alterations to the external dimensions of any leased structure” are requisitionable. Clause 6.3(b) goes on to specify that “alterations” in this context refers to alterations that are “attached to the structure and enclosed.” Therefore structures that are not attached, not enclosed, built on an exclusive use area, and erected with the lessors consent are arguably not requisitionable.

Secondly “buildings or structures not intended for common use which are situated on any part of the land that is not subject to a restricted user covenant” can also be requisitioned. For example, we would recommend that our client requisitions a title where a carport had been erected on the common area, but was clearly only for use by one of the owners.

While a defect on a title may not be requisitionable, the same defect might prevent a purchaser from obtaining insurance and/or finance. Agreements to purchase defective properties have frequently been cancelled on this basis rather than being requisitioned.

The lease document

The flat plan is essential for determining the boundaries of each unit within the property. However equally as important are the actual leases over the cross lease properties. As a reminder, each owner under the cross lease has a lease over their particular area/dwelling for (usually) 999 years, and as an undivided owner of the fee simple, are the lessor (with the other owners) under the other cross lease properties leases.

Because the building and exclusive use area is leased from the fee simple title, the owner of each unit has certain obligations to adhere to. The terms of each owner’s lease are set out in a lease instrument that is registered on the title to the property, and each lease is registered on each of the properties titles within the cross lease development.

Because many cross leases were created from the developer’s own fee simple home, some of these might create favourable terms for one property over another. A prospective purchaser’s lawyer should investigate all lease instruments within a cross lease development as a part of their due diligence. Particularly they should check what the rules are surrounding maintenance of the exterior units, insurance requirements, consent requirements for alterations, and the process for dispute resolutions.

Many lease instruments appear quite uniform, but small amendments can greatly affect each owner’s rights and obligations. When answering questions about a property, no assumptions should be made regarding the property owner’s obligations without first consulting the lease instrument or vendor’s solicitor.

By way of example, following the recent REAA complaint C15806, an agent was fined $1,000.00 and required to undergo further training for incorrect advice in relation to a cross lease property. The agent advised prospective purchasers that a cross lease property required consent from the other owners for any additional structure which might alter the title. The actual terms of the lease provided that consent was required for the erection of any unit or structure regardless of the effect on the title, meaning the purchaser could not complete their planned improvements.

Solutions

In the case of a defective cross-lease title, parties might want to start considering the effect that this has on the value of their property, and whether it is worth converting to fee simple titles. The costs of conversion including council fees, legal fees, and surveying costs can be well in excess of $10,000.00, and even more if special council requirements are triggered. The effect of a defective title on a property’s marketability might make this option more common in the future.

Another option would be to carefully draft a provision into the agreement which provides for the title being defective, and limiting the purchaser’s right to cancel or seek a price reduction on this basis. However as mentioned, finance and insurance issues may still arise. 

When advising purchasers that a title may be defective, we usually advise against confirming the agreement where possible, unless they are aware of the defect, and have set their purchase price and agreement terms accordingly. The next time you are concerned about your client’s cross lease title, contact our specialised residential property team for expert advice.

Written by Adrienne Parratt - Legal Executive (Property)

When we are asked to review a title for our clients we will focus on any easements or other documents which either grant a charge over the property, or give the property rights over another person’s land. 

One of the more common interests noted on the title to a property is an easement.  An easement is a right over another person’s land given to a land owner which is additional to their basic property rights.  Standard easements identify the land of both the dominant (land having the benefit) and servient (land subject to the easement) owners.  With an easement in gross no adjoining land is specifically identified as having the benefit of the easement.  Often easements are to allow services to reach a property over another person’s property.  This service may be underground (such as a right to drain water and sewage, or for power and telephone cables), on top of the ground (such as a right of way), or overhead (for power lines or protected rights to airspace or light). 

A plan will be attached to the title showing the area of the property which is affected by the easement (although be aware this may not necessarily mean the pipes or wires are where they should be.  Usually these easements will be shown on the title plan by way of a marked area labelled for example “A”, “B” etc.  In some cases these services will run along the same path (i.e. they all run along the driveway), but in some cases the easements will run across multiple sections of the property. 

It’s always good to know what lies beneath

The exact location of the easement is very important as there are restrictions as to what the landowner can do over the area where the easement lies.  For example:

• In the case of a right of way, the owners cannot block access to others using the right of way. 
• Land owners are restricted from building or planting large trees over an underground easement as these easements need to be able to be easily accessed should the pipe or cable need maintaining. 
• A client may be buying a property with the intention of adding onto the house.  An easement across the area they intend to build would definitely impact on whether they are able to build this addition and it is our job to alert them to this.

Who pays for repairs?

We would also check an easement document to ascertain who is responsible for repairing and maintaining the easement.  This is especially important for right of ways where the driveway may be used (and thus damaged) by a number of parties.  The Land Transfer Regulations state that by default any maintenance would be shared equally between those that use the easement.  This may not appear fair to the owner of a house at the start of a right of way that uses only a small amount of the access whereas the owners at the end of the right of way would be quite happy to have to contribute the same amount as the other owners, even though they use a larger proportion.  Some easements do have the maintenance clause varied so that the owners contribute to the maintenance and repair of the right of way in the proportion to use by each owner. 

Easements in gross

Another common easement as mentioned above is an easement in gross.  These do not usually create rights between two land owners but between a land owner and a company such as a utility company providing a service over part of the property.  The easement in gross gives the company the right to access the land to construct, repair or maintain their facilities.  Again, the land owners are generally not able to build or plant large trees over the easement area, especially if the roots of the tree are likely to damage the easement facilities or disrupt the service.

Can you get rid of easements?

Easements run with the land and often stay registered on the title even when they are no longer of any benefit to the properties (for example there are no longer any services in the easement area).  An easement can be surrendered if there is agreement between the servient and dominant tenements or if there is proof that the easement is redundant.

Your obligations as agents

Rule 10.7 of the Real Estate Agents Act (Professional Conduct and Client Care Rules) 2012 puts an obligation on licensees to disclose defects of which they are aware or ought to be aware to a purchaser.  In LB and QB v The Real Estate Agents Authority [2011] NZREADT 39 the Tribunal held:

“We consider that a licensee, upon taking instructions for a sale of a property, should search its title, or have some competent person search it for the licensee, and be familiar with the information gained from such a search.  In this case it would have also been necessary to search the content of a transfer shown as containing a restrictive covenant. Such a search is not a difficult task to carry out or arrange.  Similarly, the licensee should ascertain such matters as zoning and compliance with town planning regulations or Council requirements.  We do not accept that a licensee can simply regard such matters as within the realm of a vendor or purchaser’s legal adviser.  Licensees should be familiar with and able to explain clearly and simply the effect of any covenants or restrictions which might affect the rights of a purchaser”.

Our advice to you is that if, when searching a title, you discover an easement (or as in the example above a restrictive covenant) you are unfamiliar with, or don’t completely understand then you should seek clarification from a lawyer.  Our expert residential team would be more than happy to assist you with these queries.

Written by Lana McCarroll - Legal Executive (Property)

After taking a break from our regular articles on clauses within the ADLS Agreement for Sale and Purchase of Real Estate (ASP), it is time to visit clause 9 of the general terms of the agreement: Unit title and cross lease provisions

Clause 9 relates to the Unit Titles Act 2010 (UTA).  Sections 144-153 of the UTA require the vendor to provide Pre-contract Disclosure Statements (PCDS) and Pre-settlement Disclosure Statements(PSDS) to the purchaser. Additional Disclosure Statements must be provided by the vendor if required by the purchaser but these are at the purchaser’s cost.

PCDS must be provided to the purchaser before any agreement is signed and a PSDS accompanied by an insurance certificate must be provided to the purchaser no later than 5 working days prior to settlement. Under clause 9.3 of the agreement, if the vendor does not provide the PSDS and insurance certificate before this deadline, the purchaser may elect to vary the settlement by 5 working days from the date that the PSDS is provided to them.

The PCDS includes various information relating to insurance, Body Corporate levies (if any), long term maintenance funds/capital funds and details of any proceedings issued against or by the Body Corporate. It will also note any unregistered changes in the Body Corporate rules, weather tightness issues, and any special permissions granted over the common property that have not been previously disclosed in writing to the purchaser. The PSDS provides the same information, and allows the purchaser to know that none of the details given in the PCDS have changed. This can be particularly important where an annual general meeting of the Body Corporate has occurred between the execution of an agreement and the settlement date, where an issue might have arisen.

While the obligation to provide this information rests with the vendor and their lawyer, the real estate agent meets with potential purchasers, so a purchaser’s lawyer will find it very helpful if the agent has obtained any unit title information from the outset. This would include a copy of the Body Corporate rules and the minutes from as many previous annual general meetings as possible.

Clause 9 also covers unauthorised structures for cross lease titles and unit titles. Where structures have been erected without lessors consent (for cross leases) or without Body Corporate consent (for unit titles) a purchaser may demand the vendor to obtain such required consents and provide a copy of this to the purchaser. This demand must be served within 10 working days from the date of the agreement or settlement date.   If the vendor refuses to provide such consents, then the title may be deemed to be objectionable and the purchaser may requisition it under subclauses 6.2 (3) and 6.2 (4) of the agreement. See our other article this week for further information about cross lease titles.

For more information about unit titles contact our friendly residential property team today.

Partner - Property

Phone: +64 3 339 5642

Email: janine.ballinger@cavell.co.nz

Solicitor - Property

Phone: +64 3 339 5614

Email: james.leggat@cavell.co.nz

Legal Executive - Property

Phone: +64 3 335 3469

Email: lana.mccarroll@cavell.co.nz

Legal Executive - Property

Phone: +64 3 339 5615

Email: adrienne.parratt@cavell.co.nz

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