It’s fair to say that cross leases cause more problems than they solve. While converting a property to a cross lease may have seemed like a pragmatic option in the 1980’s era, over the years it has become clear that shared ownership of land is by no means simple. Many lawyers and real estate agents have dealt with headaches caused by inconsistent leases, unconsented structures, a lack of exclusive use areas—the list goes on.
A recent example
The recent case of Re McKay was brought before the Environment Court by a Surveyor who must have dealt with one headache too many.
His proposal was simple: “the conversion of cross lease titles to fee simple titles do not constitute a subdivision within the meaning of section 218, Resource Management Act 1991”. Essentially, he was asking the Court to enable cross lease owners to convert their properties from cross leases to fee simple titles without the need to get resource consent (so long as all owners agreed).
Although Mr McKay called many expert witnesses in support of the difficulties of cross leases, the Court could not ignore the governing law, and turned to the Resource Management Act.
The Judge observed that a cross lease is a lease of a building, not of land and considered the law surrounding this. The conceptual distinction between leasehold and freehold meant that dividing the shares in the land must involve a subdivision requiring consent.
Ultimately, the Court concluded that Mr McKay’s proposal could not stand. Even where the footprint of the new freehold titles would be identical to the cross lease areas, the true issue was about the division of the underlying land.
Therefore the conversion “must constitute a subdivision of the allotment on which the leased building sits” (at ).
Is there an end in sight for cross leases?
Perhaps one day the process of converting to fee simple will be simplified. The good news is that Mr McKay’s case has brought more awareness to the issues that cross leases cause. For now, conversion of cross leases will continue to require resource consent, and lawyers and real estate agents will continue to deal with the headaches of shared land.
If you, or someone you know, are contemplating subdividing a cross leased property then please get in touch. We’re happy to have an initial no-cost no-obligation meeting to discuss the process.