The Challenges of Cross Lease Properties

Cross lease developments started in the late 1950s and it allows multiple people to jointly own a section of land and the structures on it.  It is a combination of freehold and leasehold ownership.  Cross leases were created to avoid having to undertake a full subdivision and save costs.  The “flats” sit on what is known as the “Flats Plan”.  Each owner “leases” a specific area from the other owners (normally for 999 years at 10 cents per annum).  Simply put: all flat owners on the Flats Plan jointly own the land as to a undivided share and each flat owner owns an equal undefined share in the underlying fee simple title.  Then each flat owner has a lease registered which relates to the relevant flat (flat owners all lease their exclusive rights to occupy the flat from the other flat owners).  This arrangement is all set out in the lease which is registered on the title and it refers to the specific Flats Plan which was prepared by a surveyor. The Flats Plan shows the outline of the structures (flats and any carports or garages) and then the boundaries for each owner “exclusive use areas” unless it is an older form of cross lease which does not provide exclusive use areas.  Older forms of leases can cause disputes between owners in relation to the “common property” areas being used without consideration for other owners.  Also, if a flat owner has undertaken changes to the outline the flat when there are no exclusive use areas, this can make it harder to obtain retrospective consent from other flat owners.

There are many scenarios where cross lease titles can be deemed as “defective”. Depending on the circumstances, a defective title can sometimes give a purchaser the option to avoid a contract and it can cause issues for purchasers that require lending and/or potentially affect their insurance when unconsented works are involved.  This is when the matter of disclosure for vendors is important and for purchasers, ensuring adequate due diligence is undertaken prior to making an offer or after if the correct conditions are used that allow that.

It is incredibly important for prospective purchasers to study the Flats Plan and check that there aren’t any discrepancies when it comes to what is seen in person vs what is set out in the Flats Plan.  If there is an additional structure or an extension, then we need to consider if the works have the required Council Consent and Code Compliance Certificate (or permit if works were undertaken prior to 1991).  Then you must ensure that all flat owners consented to this work in writing.  Depending on the circumstances, you need to ensure that this won’t affect your lending and the required insurance.

Lease instruments registered on cross lease titles are important documents which should be reviewed by prospective purchasers.  The lease dictates the relationship between the owners of all of the properties within the Flats Plan. There are generally standard forms of lease that are used.  You should always review the lease as the standard forms can often be amended.  The lease states what types of activities the owner is allowed to undertake. It also defines what works the owner must obtain consent from the other cross lease owners for.  It also may state that other flat owners cannot “unreasonably withhold consent” which is particularly relevant if you plan to make changes to the flat.

The standard vendor warranties are of relevance to owners of cross lease properties when contemplating selling, if there are unauthorised structures in respect of the cross lease.  In addition to the potential lack of Council consent, there could be a defective title and potentially a breach of the lease to consider when going over your disclosure obligations.  This is when general terms may need to be deleted, an addition of a disclosure clause in the further terms or the agent may provide direct disclosure to all prospective purchasers which should be acknowledged prior to accepting an offer or prior to an auction.  In addition to this, you would need to disclose any notice received from one of your cross lease neighbours or if you have signed a consent in respect of any works undertaken on the flats plan (retrospective consent) or works they intend to undertake.  This is because it binds future purchasers, so it needs to be disclosed at the outset.  Disclosure requirements should be addressed before offers are accepted to ensure that a vendor doesn’t breach any vendor warranties and to ensure that the title cannot be requisitioned due to a defect.  

Cross leases can be confusing at the best of times, so it is best to consult your legal advisor and disclose all matters that you are aware of (e.g. any notices received in relation to works that may affect your property) and regarding works you have undertaken which are lacking the required consent.

If an extra structure is on common property such as a shared driveway or on an old cross lease with no exclusive use areas, then this may be an issue.  This is because one of the flat owners has attempted to take exclusive use of an area that is supposed to be common property, and they have breached the lease which can cause a defective title.  This is when we would need to investigate the status of those works and if other flat owners were consulted.

Another very common question we will ask is: Is the structure “attached and enclosed” to the original flat?  This question and where the structure is located, will clarify the status.  Common additions are lean-to garage (attached) or a floating deck in an entertainment area which is attached to the flat.  Or a problematic one is a fully enclosed and attached conservatory to create an extra room or a carport which now has a garage door, so it is fully enclosed with sides.  Or sometimes it is simply a stand-alone garden shed.

If it’s not attached to the dwelling, then the lease just requires that written consent from the other flat owners is obtained.  If it is attached but not enclosed, then the same applies regarding the written consent required (e.g decks or carports).  However, purchasers need to consider that if the works are up to the Building Code and that they did not require building consent due to the height (consider any restrictions on the title such as a building line restriction).  

If it is attached and enclosed, then there is an issue.  The structure in person no longer matches the Flats Plan and this means the title is defective.  There is a significant cost involved in updating the Flats Plan or potentially (pending Council approval and approval from other owners), the cross lease could be converted into a fee simple title.  This process involves lawyers, surveyors and Council consent and it is a time-consuming process.

You can contact the team at Schnauer & Co. by getting in touch with Kim Hunt.

Kim Hunt
Senior Registered Legal Executive
Email: Khunt@schnauer.com
DDI:    09 892 0351