Homeowners barred from renting or selling to "persons with brown skin", a battle over a deck at a $2 million home, neighbours extorting money from each other and the disputed demolition of a Hillsborough house - cross-lease properties can generate some unwelcome surprises.

Those are just some of the issues which have come to light in disputes about cross-lease titles, of which there are an estimated 100,000 in Auckland and about 216,000 nationally.

Since the Herald published Cross-lease properties can be 'ticking time bombs', warns top lawyer, property owners have spoken out.

They all complain about restrictions on their cross-lease titles - a far less flexible form of property ownership than the more desirable, and much more common, fee simple titles.

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Some homeowners are so cross about cross-lease that they want such titles abolished. And one legal firm is offering deals to escape the noose

The big issue is the lack of freedom to make changes to valuable homes that they want to improve. When reminded that, at the time of purchase, they agreed to get neighbours' consent to substantial additions or alterations, cross-lease owners either say they forgot, or that their neighbour is being unreasonable.

In some cases, money changes hands to get neighbours' approval for additions or alterations.

But some disputes turn neighbourhoods into combat zones. In one case, an owner admitted they ignored the cross-lease nature of the title and demolished their house without getting the neighbour's consent.

One cross-lease owner says a North Shore property he looked at a few years ago had a clause in the cross-lease document saying owners must agree not to sell or rent their place to a person with brown skin. "I kid you not," says the property investor.

He has owned several cross-lease properties, "largely without issue. I still own two that operate as rental properties."

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25 Oct, 2018 4:44pm
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But he ran into trouble when he tried adding a deck to a cross-lease house he owns in one of Auckland's more expensive neighbourhoods, to allow indoor-outdoor flow and take advantage of expansive sea views.

He got consent for the proposed deck from one neighbour, but another has refused. He owns the last unit in the block and the new deck would not affect the other properties, he says.

"Its design makes it not visible in any way from the other and it would be at the opposite end of the site to theirs. The cross-lease has a clause stating that permission shall not be unreasonably withheld," says the homeowner.

But the challenge, he says, is that the word "unreasonable" - as it relates to cross-leased property - does not appear to have any legal definition.

"All the searches I have done to date have failed to bring to light any New Zealand court rulings or guidelines as to what a reasonable person might expect that term means," he says.

Joanna Pidgeon, who has described cross lease titles as a
Joanna Pidgeon, who has described cross lease titles as a "ticking time bomb".

Joanna Pidgeon, president of the Auckland District Law Society, says cross-lease titles can be "a ticking time bomb" because of the potential for disputes between owners. The titles have specific provisions on use set out in their leases and people need to beware of that, she says.

David Whitburn, former president of the Auckland Property Investors' Association, wants cross-lease titles abolished.

"They are outdated and most owners and agents don't fully understand the lease provisions or know there is a lease agreement in place," says Whitburn. "The scale is huge and document and title deficiencies commonplace."

He wants the Government to introduce a law allowing owners to easily convert cross-lease into fee simple titles, "with no requirement to upgrade buildings, services or charge contributions or levies, with no breach of tax rules so the bright line test and subdivision test rules are not invoked."

Under his plan, cross-lease titles could be permanently phased out.

"There could be a 12-year voluntary period to, say, June 2030, then conversion becomes mandatory." If the process has not begun by about then, councils could add a cost to rates bills for properties which remain on cross-lease titles, he proposes.

"There would be no cross-lease properties allowed after 30 June 2032 - they would be fee simple titles," says the ex-lawyer.

Cross-lease properties on Hillsborough Road where one neighbour rebuilt without getting consent from the other behind. Photo/Leon Menzies
Cross-lease properties on Hillsborough Road where one neighbour rebuilt without getting consent from the other behind. Photo/Leon Menzies

A Hillsborough cross-lease owner emailed her story of "living in fear and no solution in sight".

She told how she and her partner demolished their house on a cross-lease site and then rebuilt - without first getting the neighbour's consent.

The Hillsborough woman now acknowledges that written consent should have been obtained before demolishing and building a much larger place, "but we made a mistake, we're only human".

Her neighbour has spoken out against cross-lease properties, saying no one should buy them. The neighbour says police were called to the property after she complained when the feud heated up late last year.

The new Hillsborough home is a substantial, two-level brick and weatherboard structure with a basement garage, extensive decking and glazed balconies. Behind is the neighbour's house - the original, much smaller single-level dwelling which is now overlooked by the neighbour's expanded property.

The "mistake", it seems, has greatly benefited the cross-lease owners who rebuilt without their neighbour's agreement.

Zak Nasir, a solicitor at AlexanderDorrington in Auckland, says the firm specialises in converting cross-lease titles to fee simple. "We've had a few clients call up about conversions and we've built a work flow, from getting agreements in place between the neighbours to the end, where owners have their own individual titles.

"Costs vary, depending on the number of properties involved, the legal documents needed, the number of mortgages and getting bank consents but they're OK at giving that. The banks' interests are not jeopardised by the conversion," says Nasir.

The law firm is now offering owners a "starter package", charging $6000 to convert three properties from cross-lease to fee simple titles.

The firm's Debra Dorrington says that as well as the $6000, property owners must also pay for surveyors and planners.

"Mostly, people want a place that they own outright without being tied in with the neighbour," she says. "It makes the place more valuable, and we have one where the client wants to resolve problems with their neighbours and this is one way to do that."

Cross-lease properties can create problems, Dorrington says. Although they had a purpose and made it possible to create smaller titles without full subdivision, titles can be defective and sometimes people don't know changes have been made to places they buy.

Debra Dorrington of AlexanderDorrington, lawyers offering a special deal to convert cross lease to fee simple titles.
Debra Dorrington of AlexanderDorrington, lawyers offering a special deal to convert cross lease to fee simple titles.

At issue is how precisely documents have been drafted and whether people have made additions or alterations to buildings which then cause underlying legal documentation to be wrong, says Dorrington.

Many insurance problems arose in Christchurch after the earthquakes, she says, as cross-lease owners had separate insurers.

Nasir notes that the Environment Court has declared the conversion of a cross-lease property to fee simple title amounts to a subdivision under the Resource Management Act, and a resource consent is required.

"The applicant wanted the court to decide that a conversion was not a subdivision and that a resource consent was not required for these applications," Nasir says. But the judge disagreed.

"That means property owners will have to go through the resource consent process to convert cross-lease titles to fee simple titles - even though nothing is really changing within the properties. You must go through the council's resource consent process before you are converting the titles. It's more hurdles for owners to get out of cross-lease," Nasir says.

Pidgeon and the Law Society have been raising issues with cross-lease titles over many years, and five years ago she wrote a strongly-worded paper on cross-lease deficiencies.

The shared ownership is not governed by specialist legislation and reform was mooted in 1999 by the Law Commission to address the shortcomings of cross-leases and to allow their conversion to fee simple titles, Pidgeon says.

A bill was even drafted allowing conversion. But that 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 says.

Cross-lease reform has been on the back burner ever since, says Pidgeon.

"Property lawyers and their cross-lease-owning clients are well aware of the deficiencies that still need to be addressed, with a simple statutory fee simple conversion solution required for smaller, simpler cross-lease developments," Pidgeon says.

It all dates back to around the 1960s - and it's lawyers' fault, she acknowledges: "Cross-leases were a popular form of 'subdivision' created by lawyers in the late 1960s to get around subdivision rules. In earlier cross-leases there was often no distinction made between common areas and exclusive covenant areas."

She says the nub of the problem is that cross-lease owners and often real estate agents who sell the properties don't usually fully understand or follow the terms of their leases.

This leads to alterations being carried out without neighbours' consent, and not being incorporated in flats plans, as well as breaches of other terms.

Issues are often compounded when properties are sold by auction at short notice and buyers do not have time to fully investigate title matters. Innocent and/or unaware owners are often caught out and are faced with trying to obtain a neighbour's consent retrospectively, she says.

It can even lead to a Tony Soprano-type situation. "Sometimes, sums of money are extorted to get the neighbour's sign-off, and an owner may also have to go through the expense of depositing a new flats plan," Pidgeon says.

Cross-leases are also a ticking time bomb because when such buildings come to the end of their life, the documents don't 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, says Pidgeon.

Faced with the cost of depositing a new flats plan, some owners have instead sought to convert to fee simple, as they were facing significant survey costs anyway. This is fine when it is a more modern cross-lease with separated services down the common area driveway and when reserve contributions have already been charged, but the cost is prohibitive when there are reserve contributions levied for older cross-leases, and when some councils want to impose modern driveway widths, service requirements and require buildings to be upgraded when converting existing cross-lease schemes, she says.

For Pidgeon, political will is needed for any change to occur.

So will the Government listen to the lawyers and help the crossest property owners?

The first hurdle is working out which minister's portfolio any reforms would fall under. Is it Housing Minister Phil Twyford, Building and Construction Minister Jenny Salesa or Environment Minister David Parker?

Twyford says: "I am aware of concerns about cross-lease titles. However, there are a number of more pressing issues. The Government has a full work programme in the housing sector. However, this is something that might be looked at in the future."

Is that fingers crossed, or don't hold your breath?

CROSS LEASE EXPLAINED
• Once a popular form of title for flats/townhouses to circumvent subdivision rules.
• Land is held jointly by all the owners.
• Each owner then leases their own flat from the overall group, usually for 999 years.
• The areas leased and the outlines of the buildings are detailed on a "flats plan".
• Cross-lease terms may be varied, unexpected or outdated (for example, demanding "quiet enjoyment", which some people interpret as allowing no pets).
• Some old cross-leases do not have exclusive-use areas, so gardens are shared.
• Permission is usually needed from neighbours for substantial additions or alterations to properties.

CONVERSION PROCESS
How to convert a cross-lease to a fee simple title:
• Owners of all properties on the cross-lease must reach and sign written agreement and agree on costs.
• Ensure compliance with resource consent for works on site, survey works and legal documents including creating easements.
• Full survey of each property and prepare land transfer survey plan.
• Draft surrenders of each of the cross-leases and have them signed by all parties
• Inform mortgagee (banks) or any others with interests in the title and get discharges and replacement mortgages.
• Prepare documents for the deposit of the new survey plan and lodge for registration. This will include written agreements, mortgage discharges, surrender of leases, new title certificates, transfer from joint ownership to fee simple and registration of replacement mortgages over properties.
• Once new titles have been issued, check they are correct.
[Source: AlexanderDorrington. Process subject to change and each case must be assessed individually.]

Auckland cross lease property owner Colleen Pollard is concerned about the system. Photo/Leon Menzies
Auckland cross lease property owner Colleen Pollard is concerned about the system. Photo/Leon Menzies