If you are considering purchasing a cross lease property, then it is important to understand what the term “cross lease” means, and what the issues are when purchasing a cross lease property.  This article provides an explanation of what a cross lease property is, an overview of cross lease terms, and issues regarding insurance.  

What is a cross lease property?

In a cross lease property a number of people own shares in the underlying land (“the freehold title”) and the homes each person lives in are leased from the other land owners (“the cross lease”).

For example, if A owns the front house (also known as a “flat” for cross lease purposes) of a two flat development and B owns the rear flat, then:

  • In terms of the underlying land, generally A will own a half share in the freehold title and B will own the other half share in the freehold title (shares may differ depending on the circumstances).
  • In terms of the cross leases, A and B are the landlords of Flat A, and A is the tenant of Flat A and A and B are the landlords of Flat B and B is the tenant of Flat B.

The cross lease ensures that each landowner has the exclusive right to occupy their own home.  

The cross lease defines the areas of the freehold title that are subject to the lease of the flat, any “restricted use areas” and any “common areas”.  These areas are shown on a “flats plan” (which gives a diagrammatic perspective).

The restricted use area will usually be an area surrounding and immediately adjacent to the flat and is intended to provide each land owner with a private area for use as a courtyard or garden.  

Common areas are those parts of the land that are not subject to a cross lease and are not restricted use areas. Typically common areas are common driveways giving access to some or all of the flats.  

Cross lease terms

Cross leases are usually for a term of 999 years at a nominal rental (usually referred to as a “peppercorn” rental which may be as little as $1.00).  The cross lease sets out the terms and conditions under which the particular landowner may occupy his or her flat.

The standard form of cross lease places several restrictions on the owners of each flat.  These may include, for example:

  1. Restrictions on alterations to the flat or the erection of other buildings on the exclusive use areas associated with it, without the consent of the other owners;
  2. Restrictions on leasing the flat;
  3. Restrictions as to the colours which may be used in repainting the flat;
  4. Restrictions on keeping pets.

However, cross lease terms differ and it is very important to review and be familiar with the terms and conditions of the cross lease in question.

If alterations are made to the external dimensions to the flat which are not shown on the flats plan, then this may create a defect in the title and problems may arise when an owner wishes to sell.  In order to correct a defect, a new cross lease plan would need to be completed, the old cross leases surrendered and new cross leases registered which can be expensive, particularly if a party has a mortgage over the property.

Insurance

Because cross leased flats in the same development are in close proximity to one another, even if detached, it is necessary for the proper protection of the landowners and any mortgagees, for buildings to be fully and properly insured in accordance with the cross lease terms and any requirements of, for example, mortgagees.

In relation to the insurance of cross leased flats a number of factors must be considered:

  • The value of the undamaged flats may be lowered if one of the flats in the development has been damaged or destroyed and is not promptly reinstated;
  • Owners cannot control the careless acts or omissions of other owners, which may cause damage by fire, flood or other means;
  • A fire or flood in one flat may cause damage to another;
  • Damage to one flat can cause the other owners and their mortgagees and insurers to become involved in the settlement of the claim.

Subject to the terms of the cross lease:

  • Where all the flats are in the same building or are connected (rather than being standalone flats) the recommended practice is that all flats should be insured under one policy by the land owners (as lessors and lessees) jointly for their respective rights and interests.
  • In the case of free standing flats a separate insurance policy may be taken out by each owner, but each policy should be in the joint names of the land owners (as lessors and lessees) for their respective rights and interests.

Summary

Before purchasing a cross lease property it is important to:

  • Check that the flats plan is the same as the external dimensions of the flat.
  • Review the terms of the cross lease.
  • Ensure that the terms of the other cross leases within the same development are on the same or similar terms.
  • Check that the written consent of the other flat owners has been obtained to any other structures on the property.
  • Check who is responsible for the exterior and interior maintenance of each flat.

As each cross lease will differ, and due to their complexity, it is essential that legal advice tailored to your individual situation is obtained. 


Further information