Buying a Cross-Lease: yes they're okay, no they aren't worth less than a normal house!
The very words ‘cross lease’ seems to provoke a reaction in most people for no reason other than they’ve ‘heard about them’ and ‘how bad they are’. So, what is a cross-lease and are they really all that bad?
The cross-lease was a popular ‘paper subdivision’ concept until phased out by the Resource Management Act 1990. The concept enabled cost-effective shared legal ownership of the underlying land and each ‘owner’ agreeing to notionally use their part of that land with an agreed delineated area for building a house, garage and so on (called a Flats Plan). Frankly, I personally think the cross-lease concept is a great use of precious land resources, and the statutory concept should be resurrected.
Historically, and for no good reason, cross-lease properties were considered to have less value than a freehold title. This narrative is most often supported by fifth-hand stories about arguments with neighbours and so on, or unnecessary hype made about the ‘horrors’ of cross-lease flats plans being ‘defective’. Defective flats plans occur where previous owners have made improvements outside the footprint of their agreed house area over the years such as with a garage, carport, deck, or extension etc. But the reality is cross lease properties are pretty much ALWAYS defective these days! In fact I don’t recall the last time I saw one that wasn’t. In practice cross-leases are actually no big deal: they get bought, sold, and bank-mortgaged every day, just like any other property. AND legal correction of a cross lease almost NEVER happens. Why not?
Firstly, because there’s a housing shortage, and people only care about buying the best house they can in their price range. Secondly, plan correction is a long and expensive legal and surveying process that rarely adds any real value or material change to the use of the property, so where’s the benefit in faffing around doing it and whose paying? Thirdly, so what if there’s improvements such as a garage, carport, deck, or consented house addition causing a technical ‘defect’? Is the other cross-lease neighbour going to go to court later to make you remove the ‘defect’? Ummm, unlikely, unless it materially alters the use and enjoyment of their part of the property. And if the ‘defect’ improvement has been built for years without any issues, it’s my view the neighbour has arguably given implied consent in any event.
The reality is cross-lease properties have functioned perfectly well since the 1960’s and shouldn’t be overlooked as being a 'lesser thing' when buying. Sure, neighbour disputes sometimes rarely crop up, but so they do with neighbours on any adjoining boundary too. But we recommend you always seek your own legal advice about buying any property not just those on a cross-lease, or get in touch with us to help.
