cross lease pros and cons?

[orangeskye]

Hi,

I'm new here and new to the property investment game.

I'm interested in a residential property that ticks all my criteria except for the fact that it is a cross lease. Two properties are on the cross lease as a result of a subdivision in the 80's.

I have my lawyer on the case, but am interested in opinions from experienced people.

Is a cross lease a deal breaker? What would be your concerns?

Thanks in advance

[LCS]

The first thing I would check is that the cross lease plan reflects what is actually built on site. If not I would request that the plan be updated by a surveyor before you buy.

I own a cross lease property & haven't had any problems so far but then I've only had it 4 years. As far as I can tell the main issues arise if you want to make any additions to the building or do any major work in which case you will need the approval of the other owner.

[DazRaz]

Another consideration is potential additions. If the other property is extended, it may mean your own property may not be extended as the total roof area of both properties is taken into account for consents. If neither can be extended then it is moot.

Be careful of shared areas and boundaries between the properties. Is it clear what is common and exclusive?

[orangeskye]

Thanks for the responses so far.

There is a clearly fenced differentiation between the properties, 2 separate drive ways, no common areas etc... - I'm waiting on the plans though so can't confirm at this stage whether what is built reflects the plans.

In terms of additions, it would be modernisation with no added footprint. However, I have yet to confirm the other owners property situation (other than viewing over the fence).

I'm planning to buy and hold for the long term, but obviously re-sale at some point is an issue.

Any other thoughts anyone?

[Marej]

Do you know why it is on a cross lease title, given there are no common areas?

[DazRaz]

Usually, it is because it is cheaper than actually subdividing or because you need less land to do it.

[Ivan McIntosh]

As DazRaz said, there used to be rules that allowed smaller title area if it was a cross-lease.

The usual nuisances with cross-lease titles are the inability to extend the footprint of the house without having to resurvey the flats plan and issue new titles, which is expensive, plus the need for neighbour consent. The leases can often have some onerous requirements - eg no tenants - but are usually ignored by all concerned in practice (which can create problems, eg if a careful purchaser asks for copies of the co-lessor consents to various internal works and you never mentioned said works to neighbour).

If you're not going to extend the footprint or add new structures, then they're no big deal....certainly not a deal breaker.

[Maccachic]

I'd imagine they are harder to sell? I know they were immediately crossed off my list when looking for a PPOR. There are a lot of cross leases in Tauranga.

[Wayne]

I gather cross leases are out of favour now - what eplaced them?

[Ivan McIntosh]

Ordinary subdivisions replaced them, whether freehold or stratum estate. The rules were eventually normalised so that the same land area was required in each case, and cross-leases have higher surveying and legal costs than freehold subdivisions.

I suppose there might be a few benefits such as height to boundary rules not applying to the internal boundary between dwellings on a flats plan.

[orangeskye]

Thanks for the input.

My understanding is that it is a cross lease simply for the reason others have mentioned - it was a cheaper option at the time. Each property has sufficient land to warrant an ordinary subdivision today.

I'm still undecided about this one - perhaps that means it isn't a goer!

[motivated]

If you can get agreement of the other owner and council it may add value to the property if you convert it to true freehold. It is likely that the council will agree (but not absolutely guaranteed until you investigate) to allowing this--usually at minimal cost because they are 'existing' Some councils will have some requirements but usually not onerous because the properties will usually have seperate power, water etc

Once it becomes true title, its market worth usually increases--this will depend on local market conditions--some markets loath xlease, others readily accept them without question

Best to check with a local valuer and surveyor to get a feel for gain in value, and likely costs

[Eugene]

I bought a cross leased property a couple of years ago and didn't hesitate, I have had no problems and don't expect any.
I did have to contact the other owner as tenants wanted to instal Telstra Clear for broadband, and would involve digging up driveway, this I had not expected, but managed to reach agreement with owner with Telstra Clear guaranteeing minimum of digging.
After all that, it was a non event, no digging, as Telstra Clear realised had another way to reach section.

[revdev]

I did have to contact the other owner as tenants wanted to instal Telstra Clear for broadband, and would involve digging up driveway...

Did the tenants pay for this?

[Eugene]

Yes the tenants paid, it didn't cost much in the end, but tenants were happy to pay even when involved digging up driveway. They always had the option of using Telecom so fair that they paid.