Cross Leases - Support for reform

There have been a significant number of responses to Joanna Pidgeon’s article on Cross Leases published in Law News, issue 10 (26 April 2013). ADLS’s Property Law Committee welcomes debate on this issue, and wants to gauge the degree of support for the suggestion that ADLS lobby for legislative change in this area.

Responses received thus far both agree and disagree with Ms Pidgeon’s suggestion that cross leases have inherent issues tantamount to a “ticking time bomb”.

One law firm partner was quick to dispel cross leases as a long-term problem (Letter to the Editor, Law News issue 11, 3 May). However, seven other practitioners have responded in support of legislative change, most citing examples of various problems they have encountered, particularly as a result of the Christchurch earthquake.

One long-time lawyer wrote with a personal family story of the ongoing frustrations caused by a cross-leased property damaged in the earthquakes. One of three conjoined units, each insured by a different insurer, the situation has seen differing opinions as to the level of rebuilding or reinstatement required for each unit (some more damaged than others).

This has led to months of frustrated and largely fruitless communications. The demolition and rebuild of the flat in question has yet to occur.

“Although I have indicated in writing on a number of occasions that the unit must have the same “footprint” as the existing one, otherwise there needs to be a change in the Flats Plan, one constantly hears that they will be building a satisfactory replacement unit.

They do not seem to acknowledge the legal status and the fact that under the 999 year cross-lease there is an obligation on the Lessee to reinstate.”

The reader agreed with Ms Pidgeon’s “ticking time-bomb” comment, and supports the change in legislation suggested by the Law Commission.

A partner in a Christchurch-based law firm said he supports ADLS’s attempt “to get this form of title moved into the history books”. He outlined manifold insurance issues – as he put it: “Cross-leases, insurance and large-scale earthquakes do not mix at all well”, adding that the issue of buildings reaching the end of their economic life “has well and truly arrived in Christchurch”. Acknowledging that the insurance companies are finding cross-lease titles to be a major source of frustration and delay for them, he suggests these companies may be another source of pressure that can be applied on the politicians.

An Auckland-based lawyer described the disadvantage that may be suffered due to how Auckland City’s boundaries fall. With a cross-lease title on a freestanding home and an undivided one-half share in the fee simple, he and his neighbour would like to freehold their respective properties. However, because they are within the old Auckland City boundaries, they have to switch to separate services in respect of drainage.

Were they based on the North Shore there would be no problem, the matter being routinely dealt with by the creation of easements; however he says the cost is far greater to create separate services. “So much for standardisation after two years in the “supercity”.”
Another practitioner wrote to register his support for any legislative action that would allow streamlined cross lease conversion to fee simple.

He cited a recent client experience which ran smoothly, with complete cooperation from the neighbour, but still ended up costing the client an additional $7,200 for surveying, LINZ and legal costs “which would be excessive for most who would probably not bother”.

An Auckland solicitor also pledged support, expressing particular interest in disputes and consents of owners who are undertaking extensions, saying “The current arbitration clause in cross leases is far from satisfactory given the cost compared to the dispute, which is often very important to our clients”. In her opinion, the cost of such arbitration “far exceeds the benefit of pursuing this form of dispute resolution”. She mentioned the preponderance of clients having to pay huge legal, architectural, survey and Council fees when undertaking renovations on a cross-leased property.

And a non-property lawyer found Ms Pidgeon’s article interesting on a personal basis, regarding his own family home. While aware of the issues with cross leases when they bought the property, his family didn’t realise the significant costs involved in freeholding and undertaking any development.

Having subsequently looked into it, he says “Big picture, the cost and bureaucracy involved in changing to a freehold section is prohibitive”. He maintains there would be obvious benefits in doing so, and seemingly negligible costs/detriments, “given the usual rules on development of properties will continue to apply”.

He pledged his support to “do away with this anomaly in New Zealand’s property laws with a quick and simple process to freehold cross lease sections and prevent additional cross leases being created”.

Finally, a principal wrote in to say he had not experienced any horror stories but agreed that “trouble lies ahead”, signalling his support for legislative action to enable this form of title to be unwound in the future.

It is evident that the issues of cross leases are not limited to the experiences of one property lawyer; however further comments are encouraged to ensure that any proposed solution adequately deals with the problems that have been identified. ADLS is grateful to those who have written in with comments and thoughts, and welcomes continued feedback in anticipation of lobbying for change in the near future.

Your comments are welcomed by email to: timothy.orr@adls.org.nz.  

1 Comment

Hi there,
I am looking a property where it contains 2 townhouse joined at the garages. My question is, what would it cost to have a cross lease changed a free title and would both parties be liable or just the one party requesting the change? Could the other owner refuse to allow it to be changed from cross lease to freehold. Thanks
Regards
Roy

Roy Abbott

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