When buying property in New Zealand you are effectively buying the building on a set piece of dirt. This piece of dirt is divided up on whets called the councils dwelling plans. Which diagrams where each dwelling is and where all the services and other things are, each of these are called a title.. When you buy a property there could be many different types of titles that the property could sit on. These include Fee Simple(freehold), Leasehold, Crosslease in Fee Simple, Crosslease in Leasehold, Stratum in Freehold, Stratum in Leasehold.
This all is a lot of gobly goop if you don’t know what it means. I would like to explain hopefully in an easy way what this means for you. I want to explain fee simple, leasehold , crosslease and strata titles to you.
What is Fee Simple (freehold)?
Technically the term freehold land refers to land free of any encumbrances such as mortgages.
However common usage over time now means that Fee Simple and freehold are terms which are used interchangeably.
The concept of freehold land (estate in fee simple) has its origins dating back to feudal times. Fee Simple is considered to vest in the private citizen the greatest group of rights in the use, enjoyment and alienation (i.e. the power to dispose) of the land allowed by law. In other words it is the highest form of personal ownership of land allowed under the New Zealand legal system.
Fee simple ownership has many practical advantages. Provided it is permitted by the Local Authority by way of the district plan, homeowners have the autonomy to make extensions and/or additions to their dwellings without changes to the title, and without the consent of neighbours. These activities are a particular problem with other title types.
Fee Simple owners can also bind subsequent owners of a property through registering positive or restrictive covenants upon the certificate of title. For example an owner might sell off part of a property but place a restriction on the incoming owner and subsequent owners to preserve a view by limiting the height or location of any new dwelling to be built on the alienated land.
What does Leasehold Land Mean?
A leasehold interest vests in the lessee certain occupation rights in land for a defined period of time. The rights are created by contract between the owner of the land (lessor) and the occupier (lessee).
Remember if you purchase a dwelling or commercial building located on a piece of leasehold land – you DO NOT OWN the land component.
Perpetually Renewable Leases
These are commonly found with some of the older residential leasehold arrangements. They are often referred to as ‘Glasgow leases’. They are typically renewed either every 7, 14 or 21 years, depending on what is specified in the contract. They may be renewed indefinitely, as long as the lessee adheres to his or her part of the contract.
Typically the ‘ground rent’ is renegotiated at renewal date. The most common way to establish the new rental figure is to link it to the land value. This percentage of land value is sometimes defined in the contract and other times it is not. In the latter instance rents are renegotiated at a rate dictated by the market.
WARNING: some new apartments are now being established with ground rents in place. If you buy into one of these, always ensure that future rental increases are defined by formula in the leasing agreement, otherwise you could be in for an unpleasant surprise.
Effectively when you buy a property on a leasehold title your buying the building on the property and the lease in which you have to pay an annual charge to the owner of the land(the Lessor).
What is a cross-lease?
A cross-lease is a means of obtaining a title for a share in the ownership of a piece of land and a lease of a dwelling on that land. The joint owners effectively lease the buildings to one another. Each owner holds a
“composite” certificate of title which records the land-share plus the lease. The lease is for a period of 999 years and the share corresponds to the number of dwelling units. The cross-lease plan shows the dwellings as “flats” and is often called a “Flats Plan”. The use of outdoor spaces is often defined by covenant (agreement) areas which are also outlined on the plan. There can be exclusive zones which mean that you have the sole right to the use of the area which you call exclusive. The guts of it is that when you buy a cross-lease property you are buying a share of the entire title that the properties are on.
How is it different from a unit or “strata” title?
Unit titles are supported by separate specific legislation, the “Unit Titles Act 1972”. This Act sets down in full detail how unit titles are to be created and managed.
A unit title provides separate ownership of a “principal unit” (the dwelling) and one or more “accessory units” (e.g. garages or outdoor spaces). There are lower and upper limits prescribed for each principal and each accessory unit so that all of one’s dwelling and any other buildings or outdoor living areas, service courts etc are contained in compartments of space which one owns rather than leases.
As on cross-lease plans, there can be, and usually are, one or more “common” areas covering common driveway or common open spaces jointly owned by all the unit owners.
A body corporate is required for the administration of each unit title arrangement.
Why are there two systems?
Cross-leasing was designed in the early 1960s to provide a simple means of obtaining separate titles for more than one dwelling on the same piece of land.
The unit title (also referred to as strata title) was designed to provide separate titles for buildings on different levels, i.e. for multi-story buildings. Although intended for multi-level units, the unit title is, however, also used for single level developments by choice.
I hope this helps. If you have any questions when you do come to buying a property the best advise I can give you is talk it over with your solicitor. I am not an Agent or a Lawyer so I don’t have the legal versions of this. So for peace of mind this will be the best option for you.
13 thoughts on “What does Freehold, Leashold, Crosslease and Strata Titles Mean to You When Buying Property in New Zealand”
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Hi Deon:
Is it possible for you to give a ballpark figure for the cost of converting a Unit Title to Freehold? This is just a general inquiry to establish the approximate charges this kind of conversion would entail.
Thanks and regards,
Mischa.
hi Mischa,
Sorry for the delayed response. I wanted to just make sure the info I give is accurate.
Now in terms of changing from a unit title to freehold the process is a little complicated, if there is a body corp that will need to be disolved first, then if the land size is within the council regulations then u have to go through them. council cost vary, solicitor fees will be a few grand possibly, and then the surveyer if you need one will be the most.
Likewise going from crosslease to freehold title you need to have a surveyer, meet council specifications and have your solicitor work on the title.
The process can be quite expensive.
My advice is contact your solicitor and the council and they will point you in the right direction. They can give you a more accurate cost and detail you the process.
Although not quite answering your question I hope this helps a little.
Regards
Deon
Hi there,
I just want to ask if i am going to buy a leasehold property, i will be required to pay ground rent.
so who sets the ground rent? and how do they determine that? is there any statutory authority for this?
Yes you will have to pay a ground rent on a lease hold property most likely as the land is owned by the lessee. (much like a landlord) They set the rent by usually a comparison of the land value. But at the end of the day they choose the land rent(lease). The amount will be stipulated in writing and is usually associated with a time frame and what the right of renewal is.
The best advise I can say though is check the lease through with your solicitor where they can give you the legal aspects.
Hi
A great article Deon. One thing that you mention about leases is something that is very relevant. You mention “Glasgow” leases, and I’m not sure if its the same that we have here. However the point I want to make is that anyone buying a residential property on leasehold land MUST be aware that leasehold costs can escalate when renewing. I’ve heard in some regions over the last few years we’ve had cases of leasehold rent doubling! What was $2000 a year now is $4500 or $5000 a year! Just pays to check it out really carefully.
I looked at a flat today which has a ‘cross lease’ title. This particular unit is one of 4 on the ground floor with another 2 flats above it. The agent mentioned that there is no body corporate involved in managing the flats. My question is that can each owner insure his unit independently even though they are all joined and what happens if the unit above you begins to leak and they choose not to repair it properly – with no body corporate in place, there would be no protection for the other owners?
cheers
Hello, where can I find (download) a consent form to present to our cross lease neighbours for ageement to erect a pergola. (No council permit required).
Regards, W.R.Muller
HI I see no reply to the question above regarding a unit on a cross lease that could leak. We have this very problem. The unit above us leakes into our rs apartment directly below.The leak comes from their deck.
Our unit is 32 years old and we rent it out.
The tenants are wanting to leave before winter. Scary.The previous owners of both units knew of this leak and has tried repeatedly to repair it.
We are in discussions with the current owner who was aware of the leak when she purchased the property. If anyone can give us any advise as to where we stand leagally an who is responsible for repais we would be very grateful.
hi there, I am looking into a bodycorp for the block of flats in which i own one, and there are total of six. I am concerned that the other owners may ot ne keen due to costs etc, however the flats need someone to administer them, as they are getting tired and maintenance is becoming expensive. Does anyone know whether this sort of thing is being looked into by the department of housing/unit titles act?
Hi,
i bought a property which is stratum in freehold, my question is, do i need to ask permission or approval from the body corporate if say i wanted to build a deck that is less than 1 meter and is far from the common driveway..
thanks.
Your website definition of freehold is not correct. Freehold does does not mean unencumbered. The word freehold refers to the rights of possession of the land and the time lenght of those rights of possession. Freehold means rights of possession now and for an indefinite time. ie there is no termination of those rights and they can be passed onto an umlimited number of owers for an unlimited time. ” a time in the land without end”. Note that freehold titles can be mortgaged but that does give the mortgagee any rights of possession UNLESS the mortgagor defaults on the terms of the mortgage, and then they can only sell to recover losses. The term leasehold is also about possession but a lease by definition has a specified termiation date. (though it may have rights of renewal). Lease means rights of possession for a specified time. Fee simple is not the same as freehold either – the word FEE refers to the rights to sell and pass onto heirs and simple refers to the ownership rights the state allows you as an individual to hold. The word SIMPLE means you must abide by the law, even on your own land (including the RMA), you are subject to the compulsory aquisition should the state need to take your land for the public good (state must pay compensation). The use of freehold to describe land titles free from debt is a popular misconcepetion.
Hi Ced,
Thank you very much for putting a very informed definition here.
You have a great depth of knowledge on this matter more than I do, so thank you for that.
Regards
Deon