Buying guide
Cross lease property: What you need to know before you buy
What does cross lease mean? What are the pros and cons? And what do you need to look out for before buying?
Last updated: 13 June 2024
Cross leases are a type of property ownership that have developed a reputation for being a little difficult. Often they’re fine, but in some cases cross lease titles can devalue your property, cause friction between neighbours and require a lot of money and paperwork to fix.
Before you buy a cross lease property it’s a good idea to understand exactly what you’re getting into - and what the cross lease means for you.
What is a cross lease?
The most common type of property ownership in New Zealand is freehold, where you own the land and the buildings on it. Cross lease titles works a little differently:
You jointly own all the land with other owners, or tenants in common.
You then rent or lease your portion of the land back from other owners.
You own the buildings on your portion of the land.
These leases are generally for long periods of up to 999 years and may feature a small charge of a few cents per year (that’s almost never required to be paid). Properties with cross lease titles often have shared property, such as fences, driveways, paths and lawns, and the cost of maintaining these areas is shared between owners.
What’s the problem with cross leases?
They often restrict what you can do with your property
Because you jointly own all the land with other people, some cross leases put restrictions on what you can and can’t do with your property. For example you may not be allowed to:
Keep pets at your property.
Rent the home out long term or on Airbnb.
Use the property for business purposes.
You may also not be able to renovate without the permission of other joint owners, and the help of a surveyor. We’ve also seen some strange rules included in cross leases. For example, one block of flats in Auckland had ‘exclusive use’ of their back yards except for a small path which ran through them. This path was ‘common property’ and owners of the back units were permitted to use it to cross through the middle of the yards of the front units to put their bins out.
It's important to get along with your neighbours when you own a cross lease property.
Making changes can be more difficult
If you want to make a change to the layout of your property, that can be difficult with a cross lease. That’s because you’ll need to update the flats plan, a document that comes with the title – essentially a diagram of the property’s layout, including all buildings.
To update the flats plan you’ll need to first get the permission of all joint owners. Usually this is not a problem, but all it takes is one ‘no’ from the neighbours and your renovation, alteration or building plans are done for. If you do manage to get permission you’ll still need to get a surveyor to update the flats plan then lodge it with the council. This all costs money and takes time.
Your neighbours really matter
Because of the way cross leases work, it’s super important to have reasonable neighbours who are good communicators. But before you buy a property it’s almost impossible to really know what the neighbours are like, and once you buy it’s too late.
If you’re lucky you’ll have great neighbours who consent to all reasonable requests, don’t enforce no-pet rules and make your life easy. If you’re not, a difficult neighbour could make owning a cross lease property very difficult.
They may reduce the value of your property
As you can see cross leases can be niggly. Because of that, lots of buyers will completely avoid buying a cross lease property and others will be very cautious. This can make it difficult to sell your property, and may mean you have to sell it for less. If buyers find that a title is defective they may also use this as a bargaining chip to lower the sale price (or they may pull out of the property purchase altogether).
On the flipside this may mean you’re able to buy a home for a bargain price, and if there’s no problems with the title or neighbours, you could be onto a winner.
If one owner doesn’t update the flats plan, all titles are defective
If any of the joint owners (including you) make changes to the exterior of their property without updating the flats plan, the title of every property on the cross lease could be defective. A defective title can make it difficult to secure lending or insurance against the property.
A property with a defective title can be very difficult, even impossible to sell.
Cross leases tend to only be older properties.
The good news is: Cross leases can be converted to freehold
If you’ve bought a cross lease property (or you’re considering purchasing one), you’ll be happy to know that it’s possible to convert a cross lease title into a freehold one. Possible, but not easy or cheap. Here’s how it works:
All cross lease titles on the property will change to freehold at the same time, so first you’ll need consent from all owners if you want to make the change. It’s a good idea to talk to a lawyer for advice first..
Once everyone’s in agreement you’ll need the help of a licensed surveyor who can create a new plan that outlines the boundaries of your properties. The surveyor will then give the plan to your lawyer who can draft documents required to submit a resource consent to council.
Next you’ll need to complete any work required by the subdivision consent to get the property ready. This could include modification or driveways or installation of individual water metres at each property.
Once that’s all done, your lawyer can submit an application for final council approval and send all documents to Land Information New Zealand. Your lawyer may also need to speak to your bank to discharge your old mortgage and register a mortgage under your new freehold title.
Note: because cross lease owners all jointly own the land their properties are on, you may assume you’d all get equal sections once the property was converted to freehold. But that’s usually not the case. Most often the property is split based on occupying areas, or in other words - the bits you’ve fenced in. Neighbours may change these areas by negotiating and reaching an agreement. For example, a neighbour who’s been asked to convert their title may agree to do so if they get a larger or equal share of the land.
How much does converting a cross lease to freehold cost?
Unfortunately this process can be very expensive. In Auckland a two lot cross lease conversion can cost up to $40,000, while in Christchurch you’re looking at $20,000 to $22,000, according to Civix, a land development and subdivision company based in Auckland.
With that said, it can still be worth it, especially if you’re planning to sell because converting your property to freehold status could greatly increase its value.
Cross lease properties can be fine but you should still take care when buying.
What to look out for when buying cross lease properties
Before you buy a cross lease property you’ll need to do thorough due diligence to make sure you understand exactly what you’re buying. You’ll need the help of an experienced property lawyer to:
Check that the flats plan matches the layout of every property on it. You and/or lawyer can do this by hiring a surveyor or in some cases checking Google Maps via satellite view works.
Understand what rules and restrictions are included in the cross lease.
Clarify whether you have ‘exclusive use’ of any part of the land or buildings and understand which parts are common property. Some cross lease properties have backyards that are not deemed as exclusive use areas, which may work fine in practice, but technically your neighbours may have the right to enter your yard whenever they like.
Check if there are any restrictions on how you can use the common property.
Make sure you understand what responsibilities you have to maintain the property and all its shared areas, including driveways and gardens.
If you’re planning to convert the cross lease into a freehold title after you buy it’s a good idea to speak to the neighbours first to make sure they’re all on board. Give them an idea of the costs and the benefits of that conversion and get their agreement in writing if you can. They may like to join you in doing it which could save you some costs.
That way your conversion is more likely to go ahead smoothly and you may even end up with an instant capital gain when it's done.
DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute an advice service. The article is only intended to provide education about cross lease properties in New Zealand. Nothing in this article constitutes a recommendation that any property or service is suitable for any specific person. We cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you. Before making decisions about property, we highly recommend you seek professional advice.
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