Leasehold Alternative to Unit Title Development

[Pipitea]

I understand that some apartment developments have registered leases instead of unit titles. Does anyone know of any examples and the possible motives of the developers?. I have heard suggestions of (a) a GST saving and (b) a continuing income stream from management charges and (c) easier further developments on the site (eg additional storeys).

I'm also interested to know how the leases set out how the lessor/developer charges for management, maintenance etc, costs.

[Judge]

Pipitea,
You did not get any answers because your question does not make sense. What are you trying to do? Ask a more specific question, and you will get some advice.
Generally though, when you talk about unit titling you are talking about subdivision of land. An alternative to unit titling is cross lease, which is an old mechanism to subdivide land where fee simple subdivision was not possible. Cross leases are rarely used these days because unit titles are better regulated under the unit titles act.

Developements involving leasehold land is a completely diferent cattle of fish. This is where a developer creates a leaseover land where he builds apartments and then builds on the leasehold land. So when you buy your apartment, you do not own the land. You only the improvemenets (the house) and you have to pay rental for the land that you do not own, and you can expect rent reviews.......
Hope this helps.

Judge

[Xav]

As much as I dislike many aspects of the (current) Unit Title system, having cross-leases for an apartment building would be a nightmare (if it is even possible).

[Kerry Christian]

pipitea

Houses with own titles work best

[Pipitea]

Thanks.
I agree with your views and maybe I could have explained better what I was trying to find out.
I have an extract from an Auckland Regional Council survey of body corporates and intensive housing 2003 quoting a survey respondent "Developer B" as saying
"There is a firm of solicitors in town and there is a developer who does developments on leasehold land where he does not create a unit title structure … he is creating basically a lease … the reason he does it is that … he basically tells the IRD that the payment price is a prepayment of ground rent, which basically means that he doesn’t have to refund the GST to the IRD, so it’s a GST trick. The difficulty is that the investor/purchaser loses the protection of the UnitTitles Act …. I just won’t do it, it’s as simple as that – I could do it – it’s been offered to me – it’s been proposed and suggested – I won’t do it."

I have an interest in an apartment in a development in Wellington which seems to similar to the Auckland ones. The apartment owners pay ground rent on a "Glasgow" lease (perpetually renewable) and services charges to the lessor who has a perpetual service contract. It would be an understatement to say that the investor/purchaser does not have much protection.

I was wondering how the Auckland leases were worded and how the apartment owners have been treated. I am not so concerned about the rental reviews but more about management and service quallity and fees.

[Xav]

Thanks Pipitea, that clarifies the situation greatly.

In my mind there is no question that is tax evasion. If the IRD finds out who he is (which I hope they do) then he's looking at potentially 5 years in the can, a $50,000 fine and paying all that tax back plus penalty of 150% and interest (at 14.24%).

As far as the remaining issues go, you have to be very careful to investigate the service fees, as even if they start low the contract may provide for large increases later. This problem is actually not restricted to the apartments using a lease based system (which I have no particular knowledge of), it is (currently) possible using just Unit Titles.

There is a more complete discussion in this thread, which may answer any further questions you have.