Inventor of Cross Lease supports legislation
||As part of the Property Law Committee’s examination into cross lease reform, ADLS spoke to the inventor of the concept, Bryan Mahon.
Now 92, Bryan Mahon is still incredibly active and continues to work as a consultant for the firm which he co-founded, Mahon and Sumpter, in Takapuna. Mr Mahon’s career as a former president of Auckland District Law Society, briefly mayor of Takapuna, serving in the 21st Infantry Battalion of the New Zealand Division during the Second World War and the books he has authored are detailed in a Law News article (Issue 28) in 2011.
When asked about the rationale for the introduction of the concept of a cross lease title he recalls that in the late 1950s “the idea came to me, when I hadn’t been in practice very long, that there were many people who wanted to have a title to a flat and there were only two ways to do it.
I thought through the problem and I was aware that you could get a separate title to a floor of the building and it occurred to me that if I could relate that concept to the fee simple perhaps I could get a different form of title altogether”.
Until the development and use of the cross lease title there was an absence of any rules which permitted division of a fee simple title, at that time limited to a quarter of an acre in size.
This meant that although there were large sections around each home there were insufficient properties available in Auckland for the post-war “baby boomer” population. At that time it was only possible to obtain an indirect title to a flat or unit by the following methods:
1. A Deed of Arrangement defining rights of all joint owners, with provisions for executing a further Deed every time a change of ownership occurred; or
2. Acquiring shares under the Articles of Association of a company that owned the relative units.
Both of these methods were disliked by the banks and it was very difficult to obtain a mortgage for properties with these provisions. Mahon saw this as an opportunity to assist in opening up access to land for property development to meet high demand. Having previously discussed the issues at length with retired Land Registrar Tom Dennett, who was working with a local solicitor at the time, Mahon drafted what became the original cross lease document.
Dennett was initially concerned as to whether the proposed title complied with the Public Works Act 1928 which required that there be fee-simple frontage to the road, the idea being that you had to own the unit and your share in the fee simple at the same time. Mahon convinced him that an undivided share in the fee simple was sufficient and they agreed to proceed on this basis.
“After the tidying up of some of the drafting, we applied for it to be registered by the local land registry office. The first fully registered cross lease was on the North Shore in Milford and was for a client of mine called A. Puckey,” he remembers.
When asked how the legal profession responded to this innovative approach Mahon relates that word got out very quickly. “While I had confidence that the concept had been thought-through and vetted, it was in fact so new that some practitioners were unsure due to its originality.
The first occurrence was when a solicitor informed me that, in his opinion, the title did not comply – however I was able to convince him that it had been accepted by the land registry office and it was therefore sufficient. Almost immediately other practitioners began to use the system which seemed to me to show that there was an enormous need for this form of title”.
“To explain the concept to a layperson at that time was a major effort,” Mahon adds. “I had a short note that I had prepared that I gave to clients as an initial introduction.
“However, once it got going then there was confidence and the banks very quickly began to approve mortgages. This was a major factor, along with the ability to split the fee simple, in leading to its success.”
The cross lease concept was quickly accepted and some practitioners began to expand on the idea and to apply the cross lease system to a large number of properties. “I always thought that was a concept that was only appropriate for four or at most five properties as there was no allowance for central administration. I don’t recall ever having a series of cross leases that were for more than four units”, Mahon says.
Another alteration from the original draft was to allow the fee simple owner to lease the property from and to himself. Mahon explains “In the way I set it up I introduced a nominee as the first lessee so there was a proper contract that could tie the lease to the fee simple. However, other practitioners who were using the document found that awkward due to the need for signatures from various parties and amended it”.
One change he was disappointed to see many practitioners make was to remove the provision for insurance policies over the properties to be held by only one insurance company. “I felt that there should only be one policy otherwise there could be problems”.
Sadly this has proved to be the case, as one experienced lawyer detailed in a recent Law News article which highlighted the problems where three conjoined units were damaged by the Canterbury earthquake and each was insured by a different insurer.
Because of the problems caused, the demolition and rebuild of the unit has yet to occur as the insurers did not seem to acknowledge that “there was an obligation on the lessee to reinstate”.
Many clauses were later inserted into the cross lease titles that were only possible after the concept had become well established.
“Originally you could not get separate areas registered in your lease as that would effectively be a sub-division and it was only much later on that these separate areas were accepted by the land registry offices and only then could the cross leases allow for them.”
When asked his opinion on the call for the introduction of legislation to permit conversion of a cross lease to fee simple, Mahon replies “I’m sure it would be in the right direction as what I invented was intended to fill the enormous gap caused by the absence of any flat unit legislation.
I would support the argument for legislation that would allow cross lease conversion to fee simple where it was not a situation where conversion to a unit title would be more appropriate in light of shared services, walls etc.”
However on the issue of including a mandatory conversion in any legislation he points out “It’s really the owner’s choice and any introduction of a mandatory system would require very careful thinking through.”
It is difficult to imagine how the North Shore, with its approximately 100,000 cross-leases making up almost 50% of registered titles, could have developed without the original thinking of Bryan Mahon and Tom Dennett.
Bryan Mahon was interviewed by Timothy Orr, ADLS.