Real Estate is a very valuable asset, probably the most valuable asset you own, and whether you are buying your first home or selling several investment properties it is important that you are confident in your legal team.
You will be presented with complex documents very early in the buying or selling process, and our friendly professional team will be happy to advise you on their sometimes bewildering contents – ideally before you have signed anything. We are able to help you consider, among other things, your LIM, the Certificate of Title, finance agreements and any Cross Lease implications.
If you are looking to buy a cross lease property it is imperative that you compare the actual buildings erected on the site with the outline or footprint of the property shown on the flats plan.
Any change to the footprint of the building or additonal structures is a defect in title.
The REI - ADLS standard Agreement for Sale & Purchase gives the Purchaser the right to requisition the Vendor in respect of some cross lease defects (Clause 5.3.). As this right exists for only 10 working days from the date of Agreement it is essential that the Purchaser and their Solicitors ascertain at the earliest possible time whether action needs to be taken. The clause in Standard Agreement requires the Vendor to rectify the defect by effecting the deposit of a Flats Plan which correctly shows the flat and other buildings and to effect the issue of a new Certificate of Title.
The cost of the survey and legal work to do this would usually be in excess of $5,000.00.
If an additional building or structure is constructed on the property in the exclusive use area but does not fall within clause 5.3 the Purchaser can require that the Vendor supplies written evidence of the other Leaseholders’ consent to the structure.
What is a Cross Lease?
A Cross Lease is where a number of people share in the ownership of a piece of land (as tenants in common which means they can sell or pass their share in their Will). Homes that are then built on the land are actually leased from the other landowners.
Cross Lease Title
Each owner holds a “composite” Certificate of Title which records the land share plus the Lease. The Lease is usually for a period of 999 years and the share corresponds to the number of dwelling units on the property. The Cross Lease Plan which is attached to the Certificate of Title shows the dwelling as “Flats” and is often called a “Flats Plan”.
The use of outdoor spaces is defined by covenant areas which are also outlined on the Plan and should be referred to in the Lease. What looks like your backyard may be defined as an “exclusive use area”. This means you have exclusive rights to use the backyard but does not mean you “own” this area.
Disadvantages of Cross Leases
The problem with this type of ownership is :
(a) The rights of the owner depend on the terms of the particular Lease which has usually been arranged by a developer who has built the development but now has no further interest in it.
(b) The usual term of a Cross Lease is 999 years whereas the physical or economic life of the house will be a lot shorter.
(c) You must comply with the covenants, (obligations or agreements) set out in the Lease. If you fail to comply the other flat owners may be able to compel you to sell your undivided share in the fee simple Title.
(d) You will usually need to get unanimous support of all the owners of the Cross Lease homes to make any kind of decisions, for example, decisions concerning common spaces such a driveways or car parking areas. If agreement cannot be reached it might involve lengthy arbitration.
(e) When homes are altered unless the Cross Lease and Building Plans are changed the original Cross Lease will not include the alterations without additional surveying and legal costs. Furthermore, you will need to get the agreement of other Leaseholders before you can do the work.
(f) Most Cross Lease owners believe that their Title is as good as an ordinary freehold Title without understanding all of the implications.
The difficulty with Cross Lease Titles will become more widespread in the years to come as the buildings on them get older and require alterations and additions to keep them up with modern standards. This is an impediment to minor alterations to buildings on Cross Lease Titles as in some instances the cost of correcting the Title may be more than the cost of the alterations themselves (including any building consents). As these structures get older owners will either not upgrade their houses because of the extra Title cost or they will go ahead and do minor alterations without correcting the Title. This will lead to the incidence of defective Cross Lease Titles probably slowly increasing over time.