Cross-lease vs fee simple

by | Aug 21, 2012 | Cross-lease, General property Law, Sale and Purchase

Fee simple

Fee simple ownership is true exclusive ownership and possession of the land and buildings on it. It’s ownership of what is below and above the ground (as is reasonable). Yes, others do get a say – for example the neighbours might have a say over fences; Council in terms of compliance with the District Plan or the Building Code and there are all sorts of other legal rules that impact your ownership – trespass, nuisance etc. but it’s as good as it gets.

Cross lease

A cross lease owner gets a composite title. It shows a shared fee simple interest and leasehold interest on one title.

You and the neighbour together own the underlying land and buildings. That ownership is an undivided share. Be warned, it might say 50/50 on the title but in actual fact, it could be 70/30 because of the size of the respective buildings and the way exclusive areas have been created.

Potential issues

  • If you are doing anything relating to the common property – sorting drainage, repairing the shared driveway, weeding the shared garden – then you and the other cross lease neighbours need to be in agreement. That can be hard to achieve sometimes. If agreement cannot be reached, court action or arbitration might be the only option.
  • Dealings with the buildings and exclusive use areas on the land are governed by the terms of the leases.  Each cross-lease owner will have their own separate lease. The owners together are the lessors. The lessee is the individual whose house it is. If a lessee wants to renovate, the cross-lease neighbour’s consent may be needed. The lease might say ‘no pets’. It might say ‘you need joint insurance’. The clauses about the exclusive use area might be unclear. The leases on the same cross-lease might be the same, or they might be different so that you and the neighbour have different rights and restrictions that apply. It’s like being a tenant in your own house.
  • There are other possible problems with cross-leases – for example when the underlying land is itself leasehold, registration of easements over composite titles, uncertainty as to fencing, possible mortgage difficulties.

Despite these potential pitfalls, the cross-lease title is still widely accepted. Just be clear that a cross-lease title is not as good as a fee simple title.

Buying and selling

Update the plan attached to the title, each time the house is added on to. It’s the house shown on the plan that is leased. There are many cross-leases where this is not done. More purchasers are becoming wary about this. If you are considering updating a cross-lease plan that does not properly show the buildings, consider asking for a full subdivision and getting a separate fee simple title. The cost may not be that different.

If you are considering converting a cross-lease to a fee simple title, we can assist. We have extensive experience which helps streamline this sometimes complex process. Call us to make an appointment on (09) 375 2770.

By <a href="" target="_self">Denise Marsden</a>

By Denise Marsden