Cross-Leases – What are they? How do you get rid of them?

The Resource Management Act 1991 has now effectively made cross-lease arrangements redundant, however, problems with existing cross-leases continue to affect property owners.

What are they?

The owner of a cross-lease title owns:

• an undivided share in the underlying land as tenants in common with the other cross-lease title holders; and
• a leasehold interest in a dwelling or certain area of the underlying land from the other cross-lease title holders usually for 999 years, being effectively in perpetuity.

Owners of cross-lease titles have more limited rights than freehold owners because of the shared nature of the land ownership.  The right of an owner to develop and improve a cross‑lease property requires the consent of other cross-lease owners.  This can be exploited, giving cross-lease owners control over the activities of their neighbours.

In 1999 the Law Commission looked into the nature of cross leases and reported that they are “irremediably flawed” and recommended enabling the conversion of cross-lease titles to freehold.

How do you get rid of them?

In 2018, the Environment Court clarified the process a cross-lease property owner must go through to convert their property to fee simple or unit title. In Donald Fleming Mckay [2018] NZEnvC 180, the Court set out converting a cross-lease is a subdivision of land under the Resource Management Act.

The first step is to talk to your neighbours to find out whether they would like to convert their cross-lease title.  All owners of the cross-lease title will have to agree to the conversion.

The second step is to speak to a local planner to ascertain whether you are permitted under the district plan to complete the conversion.  For example, there may be limits on minimum freehold Lot sizes under the relevant district plan, which make a freehold conversion not possible.

Prior to applying for a resource consent, you will need to engage:

1. a lawyer to review the existing records of title and leases and prepare an assessment of environmental effects (at TODD & WALKER Law we can assist you with this);

2. a licensed cadastral surveyor to assess the properties and gather information on the location of existing dwellings, access, drainage, and any other features; and

3. an engineer to assess the existing infrastructure.

Once you have done the above you will be in a position to submit an application for resource consent to your local council.

The local council may impose certain conditions that will apply to the conversion (e.g. carry out improvements to the drainage).

Then your lawyer will liaise with the surveyor, the property owners and any mortgagees to execute the necessary legal documents.  The solicitor and surveyor will submit these documents to Land Information New Zealand in order to obtain the new fee simple titles.

If you are the owner of a cross-lease property and would like to look into this option, or if you have any questions about this process, please contact one of our experienced members of the Property team for further information on [email protected] or 03 441 2743.