Cross leases are confusing. To the lawyer who dreamed up this arrangement in the 1950s: We are not your biggest fans. Questions about cross lease titles and what makes them ‘defective’ are one of our most common enquiries from agents, so we thought we would revisit the topic in a bit of detail.
A cross lease has multiple owners holding a share of the underlying land, then each owner ‘leases’ a specific area from the other owners (normally for 999 years at 10 cents per annum). This arrangement is set out in the Lease document registered on the title and that Lease will refer to a specific Flats Plan prepared by a surveyor.
Things to look out for
As mentioned above, with a cross lease, everything important is set out in the Lease and the Flats Plan. The Flats Plan shows the outline of the buildings and the boundaries for each owner’s ‘exclusive use area’. It is incredibly important to check that the buildings on the section match the Flats Plan. If there is an additional structure on the property which is not on the Flats Plan, we could have a problem.
To help you decide how big of a problem you have, we’ve put together a helpful flow chart. Start by asking yourself a couple of questions:
Is the structure on common property?
If someone has built an extra structure on common property (such as on a shared driveway or accessway) then we have a problem. This is because one owner has taken exclusive right to an area that is supposed to be shared property. This can cause the cross lease to be defective.
Is the structure attached?
So, someone’s built an extra structure on the property. Whether it’s a garage, carport, deck, conservatory or shed or extra bedroom, you’ll need to look at whether it is actually physically attached to the original Flat.
A lean-to carport? That’s probably attached. A deck coming off the living room. Attached. A garden shed sitting in the garden? Not attached. The kitchen’s been extended? Definitely attached.
Is the structure enclosed?
Is this new structure fully enclosed, with walls and a door?
A shed or conservatory is probably enclosed. A deck or veranda is not. An extended bedroom is definitely enclosed. A carport is generally not enclosed, while a garage usually is. Converting a carport into a garage is therefore making a difference.
So, once you’ve asked those questions, you have the results:
If it’s not attached to the dwelling, it’s not a big problem. The Lease just requires you to get written consent from the other flat owners. A signed, one paragraph letter "We, John and Jane Smith consent to the garden shed being placed in Flat 1’s garden" is fine. We suggest you provide this document to buyers with vendor disclosures.
Attached but not enclosed
Once again, if the structure is attached to the dwelling but not enclosed, it’s OK as long as you get the written consent from the other flat owners. This will apply to things like decks or carports.
It’s important to note that although recent changes to the building code mean that some structures like carports no longer need building consent from Council, you still need the neighbour’s written consent to the addition, as these are two separate concepts
Attached AND enclosed
If there’s been construction that is both attached to the dwelling and enclosed, then we have an issue. The structure in real life no longer matches the Flats Plan. This means the new area is not validly leased from your neighbouring owners. This is what we call a defective title.
A possibly defective title should always be disclosed to potential buyers, as banks and other lenders can be less willing to lend to the purchaser. It can also cause insurers to take a more cautious approach.
To fix a defective cross lease title the Flats Plan needs to be updated, or the cross lease converted into a fee simple title. Both these options require surveyors, lawyers and Council consents. Unfortunately, this means they aren’t fast or cheap.
This is just a quick summary of possible scenarios, so if you’re ever unsure, or have any questions about titles in general, please feel free to give us a call or contact us here.
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