Lorraine Burns
Aug 2, 20207 min
Updated: Aug 11, 2020
The type of ownership has a direct impact on what you can and cannot do with the property. There are four main types of property ownership in New Zealand – freehold, leasehold, unit title and cross lease.
The record of title (or certificate of title) is the legal document that contains the property’s legal description, details of its ownership and the rights and restrictions registered on the title.
Freehold - also known as fee simple, is the most common and best form of property ownership in New Zealand. With a freehold property, you own the land and anything built on the land unless there are any registered or unregistered interests.
With a freehold property you can renovate or add to the property without obtaining the consent of neighbours. You will still need to obtain necessary building consents from the Council.
When you engage Exclusive Buyers Agency we will obtain the record of title and will investigate any interests that are registered on the title that might restrict your use of the property including:
easements that give neighbouring property owners or utility companies the right to use part of the land to pass over or connect to services
covenants that limit what type of property you can build on the land
encroachments (building line restrictions and marginal strips)
restrictions under the Resource Management Act 1991
caveats and notices of claim
statutory land charges
Leasehold – someone else owns the land and you purchase an exclusive right to possession of the land and the buildings for a specific period of time according to the terms of the lease.
Leasehold homes are scattered across New Zealand and are often owned by church groups, developers or councils. In central Auckland about 15% of apartments are on leasehold land.
It is not uncommon for leasehold properties to lose value. Most of the capital gain on a freehold property is achieved from the land. According to QV.co.nz a two-bedroom apartment, in the Scene 3 building in central Auckland that sold for $65,500 was originally purchased in 2006 for $490,000 and then resold for $280,000 in 2014. That means the original buyer lost $210,000 on the unit and the second buyer lost $214,500, before allowing for selling costs such as agent's fees and legal expenses. Uncertainty over the amount of the ground rent increase, was one of the reasons for the property's slide in value.
Most leasehold property leases have review dates where the ground rent that is paid is recalculated. With some leases, the review may occur every 21 years and with others it may be every 7 years.
The owners of 110 leasehold houses on the edge of Auckland’s Cornwall Park are now paying up to $90,000 per property per year. 15 homeowners have been forced to walk away from their properties because the ground rents have crippled them and the remaining homeowners said they will likely do the same.
Most leases are in perpetuity – they keep renewing. But some leasehold properties in Central Auckland are limited to 70 or 90 years. At the end of the term of the lease the property goes back to the owner of the land and the person who bought the leasehold property has nothing.
When you try to sell a leasehold property, the value of the property will depend on the number of years that remain on the lease. There is a huge difference between the value of a property that has 50 years left to run and one that has only 5 years.
With leasehold, it is the owner of the land that benefits from the increase in the value of the land over time. You only have the right to live there and may own an ageing house or apartment in need of repairs, that could be decreasing in value.
If you want to make any additions to a leasehold property you will need to check the lease to see if it contains any clauses relating to alterations and obtaining the land owners consent. The land owner can charge a reasonable amount for legal or other expenses incurred in giving consent such as surveyors and solicitors costs.
When you engage the Exclusive Buyer Agency we will:
review the cross lease rules
review the record of title and any interests recorded
review the LIM (land information memorandum) report
inspect the local council property file
talk to the neighbours
arrange and review the building inspection and toxicology reports
Unit title - also called strata title or stratum estate is most common in a building where there are multiple owners. As a unit owner you own:
your particular apartment or unit and any accessory units, like garages, car parks, private courtyards and storage areas contained in the record of title
an undivided share of the ownership of the common property (lifts, lobby areas, driveways and gardens).
When you purchase a property with a unit title, you automatically become a member of the body corporate, which consists of all the unit owners. Most day-to-day decisions of the body corporate can be made by a body corporate committee or with the agreement of 50% or more of the unit owners.
You will usually pay an annual fee to the body corporate, which will go towards budgeted body corporate expenses. The fee will include costs like insurance and management expenses, contributing to a long-term maintenance fund and any services the body corporate arranges such as rubbish collection and cleaning of common areas. Body corporate costs that have not been budgeted for are also payable by the unit owners.
The body corporate’s rules set out how you and the other owners can use your units and the common areas.
When you engage Exclusive Buyers Agency we will:
obtain the record of title and investigate any interests that are registered on the title
review the body corporate rules
review the body corporate minutes of meetings to identify problems and issues
review the body corporate’s maintenance plan and check that funds have been set aside to pay for ongoing repairs and maintenance
identify all the regular fees and costs
talk to the neighbours to find out how effective the body corporate is and to identify issues that have not been recorded
review the pre-contract disclosure statement
review the pre-settlement disclosure statement
any additional information requested about the body corporate
arrange and review the building inspection report and toxicology report
For further information about Unit Titles view the Short Guide to Unit Titles booklet.
Cross Lease - The underlying freehold title to a cross-lease property is owned jointly by the owners of all the flats (houses, apartment or units) that exist on it. These owners then lease parts of the land and buildings back to individual owners, often for a term of 999 years. In Auckland there are over 100,000 cross lease titles.
When buying a cross leased home unit or house you will usually get:
An undivided share in the total section
A lease or cross lease of your unit or house
The exclusive use of the land around your unit or house as shown on the flats plan
The shared right to use areas marked "Common Area" on the flats plan
The cross lease creates rights of exclusive use and enjoyment for each flat and this is recorded on the flats plan which you will find with the record of title. The areas leased and the perimeters of buildings are found on the flats plan. However, some early cross leases do not have any exclusive or common areas marked on the plan and all of the land is common area which can be used by all owners.
The leases and flats plans are registered with LINZ (Land Information New Zealand). The flats plan is sometimes referred to as the deposited plan or a cross lease plan.
When considering a property with a cross lease title you need to check that any additions that involve extending the footprint of the property, have:
1. the written consent from all the other owners involved in the cross lease
2. the approval and consent from the Council to make the change
3. the flats plan updated with LINZ
It is common for property owners of cross lease properties not to be aware of the need to update the flats plan with LINZ and this can cause the title to become defective. For more information on the risks of buying a cross lease property read my blog.
A Bank will not lend on a defective cross lease title and if the other owners’ titles are also defective it can be a very expensive and drawn out matter to rectify.
There are usually rules within the lease which all owners must comply with. These may include rules relating to the use of common areas, driveways; maintenance; pets; working from home; renting the property; insurance; nuisance; disputes; additions and alterations; exterior colours; payment of charges for water, electricity, rates and any other outgoings.
Disputes can arise between cross lease property owners when owners do not read, understand or abide by the cross-lease rules. Common disputes involve parking, access, maintenance, drainage, noise, rubbish, unauthorised additions and alterations.
Problems also arise when buildings come to the end of their natural life. Cross leases do not address rebuilding. These issues are compounded when cross leases were created with buildings of different ages as not all flats will need to be rebuilt at the same time.
When you engage Exclusive Buyers Agency we will talk to the neighbours about any issues; obtain the record of title, flats plan and the cross-lease rules and advise you of anything we uncover that could become a problem or restrict your use of the property.
Exclusive Buyers Agency will never try to sell you a home. We provide you with all the information (good and bad) to enable you to make an informed buying decision.
When you need experts, who are on your side and committed to helping you get what you want call me directly on +64 21 468 828.
Discover the 6th biggest mistake you can make when buying a house in New Zealand.
Lorraine Burns
Licensed Buyers Agent (REAA 2008)
Managing Director & Buyers Agent
Exclusive Buyers Agency Ltd
Mobile +64 21 468828
DISCLAIMER: The information contained is not intended to form professional legal advice or legal opinion on any particular matter. The opinions expressed in the material are not necessarily those of IFPNZ Ltd (Licensed REAA 2008). IFPNZ Ltd and Exclusive Buyers Agency Ltd make no representation or warranty as to the accuracy or completeness of the material. Exclusive Buyers Agency Ltd & IFPNZ Ltd accepts no liability for any loss, damage or consequence, resulting directly or indirectly from the use of the material.