Fee Simple or Cross Lease titles – Key differences and the process for converting

If you own land or are considering purchasing it, understanding the type of ownership is essential.

Different estates come with unique characteristics that can affect how you use and manage the property. In New Zealand, there are several different land estates, each with its own advantages and disadvantages. Two common forms are fee simple (also known as freehold) and cross lease.

Fee Simple (Freehold)

Fee simple land is generally the simplest form of property estate in New Zealand. Owning a fee simple title means you have complete ownership of the land. This gives you flexibility to build or make changes without needing consent from other owners, unlike cross lease arrangements. However, your property is still subject to council regulations and any registered interests on the title, such as easements or land covenants, which may affect what you can do. Fee simple titles are often viewed more favourable to prospective purchasers when selling your property because they offer full ownership, autonomy, and no lease expiry dates and thereby potentially increasing the market appeal and value of the property.

Cross Lease

Cross leases are a type of title which were favoured in the 1960s by developers as a means to complete a subdivision in a flexible, expedient and less costly manner when compared to fee simple subdivisions. Cross leases are made up of two components. Firstly, the parties to the cross lease all own an undivided share of the underlying land and secondly, a lease for party of the land/building. Each owner of the land may then erect a building on their allocated area/segment of the land. This building will then be leased back to them (often for a term of 999 years) and recorded on the record of title.

The lease sets out the rights and responsibilities of each party sharing an undivided share of the underlying land, including a right of exclusive use and enjoyment for each building and usually the yard associated with that building.

Restrictions of Cross Lease Titles

Generally the lease contains rights and restrictions on what you can and cannot do on your property. The more significant restriction being the requirement to obtain your cross lease owners consent to any additions or alterations on the land and to any dwelling(s) on the property.

If consent of the other cross lease owner(s) is granted, you will also need to update the deposited plan / flats plan shown on record of title in order to accurately reflect the dwellings located on the underlying land which can be costly. If consent is not obtained or the flats plan is not updated or obtained prior to carrying out such works on your property, this may result in a dispute between owners or a defective title. This can affect the future on-sale of the property as under the latest ADLS Agreement for Sale and Purchase of Real Estate, a prospective purchaser may request that a new flats plan is deposited or you obtain consent from your neighbours for any unauthorised structures prior to settlement.

Benefits of Fee Simple Titles

While there are some advantages to maintaining cross leases, including having an element of control over what your neighbour / cross lease owner can and cannot do on their property, it may be beneficial to convert your cross lease title to a fee simple title. Full ownership then gives you the freedom to build, renovate and make changes without requiring consent from other owners.

Converting Cross Lease to Fee Simple

The first step is to discuss with your neighbouring cross lease owners to see if they are interested in converting to fee simple. If all parties are interested, then converting your cross lease involves the following:

• Engaging a surveyor who will assess the underlying land as to the services and access to the dwellings. This stage may also include an assessment on whether separate services for sewage, water or drainage are required.
• A Resource Consent would then need to be applied for from local council. Depending upon the property and area, council may impose conditions and works needing to be undertaken prior to granting consent.
• Once consent is granted your surveyor will provide the plan to your solicitor. Your solicitor will then use it to draft the relevant documents to complete the cross lease conversion, including obtaining mortgagee consent (if applicable), drafting easements, covenants and preparing all ancillary documents necessary.
• Once both your surveyor and solicitor have worked together to prepare the relevant documents and obtained the necessary consents, the documents and plans are lodged with Land Information New Zealand for separate fee simple titles to be issued for you and your neighbour.

Holland Beckett has a large, experienced property law team who have assisted many clients in converting to fee simple titles. If you would like any assistance with converting your cross lease, please get in contact with one of our property team.