Cross lease titles a ticking time bomb, warns lawyer

Joanna Pidgeon.

An Auckland lawyer is warning about dangers with 216,000 cross lease property titles and has called for people's horror stories about the issue.

Joanna Pidgeon, a partner at Pidgeon Law in Auckland, an Auckland District Law Society councillor and member of the society's property law committee, is calling for a law overhaul allowing owners of these titles to be able to convert them to far more desirable, cleaner fee simple titles.

Auckland has more than 100,000 cross lease titles, a form of shared ownership often applying to brick and tile ownership flats or houses, developed around the 1960s in many urban areas, she said.

Pidgeon said owners could face huge fees when they wanted to make changes to houses or units on such land, and adding another level, a deck or making major renovations could create big issues.

She wrote an article for LawNews, warning of the deficiencies of cross leases and said she knew of some dreadful situations.

Before any major building work took place on a cross lease title, owners must get their neighbours' permission.

Although they might know a few facts about the cross lease title when they bought the property, sometimes they forgot about the neighbour permission issue or simply did not know about the restrictions until it was too late, she said.

Sometimes, people had to pay $20,000 or more to a neighbour to get sign-off allowing building alterations to a unit or house - either before or after the building work had taken place - and the owners might also be put to the expense of having to deposit or lodge a new plan for the entire property, she said.

In some cases Pidgeon has handled, neighbours have withheld consent to building changes resulting in a bitter and drawn-out process of negotiation.

"The only alternative in dealing with this issue is to proceed to arbitration as the sole dispute resolution mechanism, which is costly and through which there is no provision for costs to be awarded for unreasonable behaviour," she said.

Owners of unit titles - a far more common form of shared ownership - have at least got an avenue for disputes via the Tenancy Tribunal "but this option is not available to cross lease owners".

Pidgeon called the titles a ticking time bomb because the houses or units built around the 1960s were coming to the end of their lives.

"Cross leases do not specifically address rebuilding issues. Many cross leases were created with buildings of different ages which creates further issues if not all flats need to be rebuilt," she said.

The increasing popularity of auctions and extremely short timeframes to sell places in Auckland compounded the situation because buyers often did not have enough time to fully investigate title issues. Innocent or unaware owners were then caught out, trying to get a neighbour's retrospective consent to building work.

Some councils are also charging big reserve contribution fees for changes made to cross lease sections.

Pidgeon said the Law Commission proposed reform in 1999 to address the shortcomings of cross leases and to allow conversion to fee simple titles. "However, this proposal was dropped when unit title reforms were implemented, allowing only the conversion of cross leases to unit titles, which does not suit most forms of cross leases," she said.

Unit title changes were made in 2010. Political will was now needed to get changes enacted to cross lease titles because it was now nearly 45 years since the creation of this form of tenure, she said.

A spokesperson for Housing Minister Nick Smith said the issue was not on the political agenda.

NZ Property Investors Federation president Andrew King said he knew of the push for reform of cross lease titles a few years ago. "It is better to have a full fee simple title than a cross lease, but they aren't that bad.

"It is true that you have to have your dwelling surveyed and included on the title and there are restrictions on what you can do to your property in terms of extending it. Overall it generally works out and cross lease properties are usually cheaper to buy, which makes them good as a rental."

Auckland Property Investors Association president David Whitburn said cross lease titles were not defective.

"A large number of our members have these properties with no issues," he said. "They are often sold slightly - $20,000 to $30,000 - cheaper than freehold fee simple, but increasingly there is no value differentiation.

"Some purchasers even like cross lease as it gives the advantage of a measure of control over what their neighbours do in terms of additions and alterations to their property. Others see it as a disadvantage with having to get neighbours' permission for such alterations. Beauty is in the eye of the beholder."

Cross lease titles

* Once a popular form of title for flats, townhouses to circumvent subdivision rules.
* Land and buildings owned by occupants.
* They are tenants in common with each other.
* Flats are then leased from the joint owners, usually for 999 years.
* Cross lease terms may be varied, unexpected or outdated (for example, no pets).
* Some old cross leases do not have exclusive-use areas so gardens are shared.
* Permission from neighbours needed for big changes to properties.
* Law organisations are pushing for change.

Cross lease horror story?
Email anne.gibson@nzherald.co.nz