The Challenges of Cross Lease Properties

As a first-home buyer, this guide gives general context for the title and lease issues to check before relying on a cross-lease property.

What is a Cross Lease Property?

A cross lease is a form of ownership where you hold a share of the freehold title with the other cross leaseholders, plus a leasehold interest in the area and building you occupy.

Cross leases were created to avoid having to undertake a full subdivision and save costs. The "flats" sit on what is known as the "Flats Plan". Each owner "leases" a specific area from the other owners (normally for 999 years at 10 cents per annum).

This arrangement is all set out in the lease which is registered on the title and it refers to the specific Flats Plan which was prepared by a surveyor. The Flats Plan shows the outline of the structures (flats and any carports or garages) and then the boundaries for each owner's "exclusive use areas" unless it is an older form of cross lease which does not provide exclusive use areas.

Older forms of leases can cause disputes between owners in relation to the "common property" areas being used without consideration for other owners. Also, if a flat owner has undertaken changes to the outline of the flat when there are no exclusive use areas, this can make it harder to obtain retrospective consent from other flat owners.

Defective Cross Lease Titles

A cross lease flats plan may be defective or out of date if alterations to the property footprint have not been included. Depending on the agreement wording and legal advice, this can raise title, lending, insurance, disclosure or cancellation issues. Buyers should check the title, flats plan, lease and any council records before signing, or use conditions that give enough time for those checks.

If there is an additional structure or extension, check whether council consent, code compliance documentation or earlier permits were required, and ask your lawyer whether the other cross leaseholders needed to consent. Depending on the circumstances, the issue may also need to be checked with your lender and insurer.

Lease Instruments

Lease instruments registered on cross lease titles are important documents which should be reviewed by prospective purchasers. The lease dictates the relationship between the owners of all of the properties within the Flats Plan. There are generally standard forms of lease that are used. Review the lease because standard forms may be amended and the registered terms matter.

The lease states what types of activities the owner is allowed to undertake. It also defines what works the owner must obtain consent from the other cross lease owners for. It also may state that other flat owners cannot "unreasonably withhold consent" which is particularly relevant if you plan to make changes to the flat.

What to Consider When Selling a Cross Lease Property

The standard vendor warranties are of relevance to owners of cross lease properties when contemplating selling, if there are unauthorised structures in respect of the cross lease. In addition to the potential lack of Council consent, there could be a defective title and potentially a breach of the lease to consider when going over your disclosure obligations.

This is when general terms may need to be deleted, an addition of a disclosure clause in the further terms or the agent may provide direct disclosure to all prospective purchasers which should be acknowledged prior to accepting an offer or prior to an auction.

Disclosure requirements should be addressed before offers are accepted to ensure that a vendor doesn't breach any vendor warranties and to ensure that the title cannot be requisitioned due to a defect.

Cross leases can be confusing, so get legal advice and disclose known matters that may affect the title, lease, council records or the property you are selling.

If an extra structure is on common property such as a shared driveway or on an old cross lease with no exclusive use areas, then this may be an issue. This is because one of the flat owners has attempted to take exclusive use of an area that is supposed to be common property, and they have breached the lease which can cause a defective title. This is when we would need to investigate the status of those works and if other flat owners were consulted.

Attached or Enclosed Structures on a Cross Lease Property

A useful legal question is whether a structure is attached, enclosed, or changes the building footprint shown on the flats plan. The answer and the structure location can affect what checks are needed.

Common additions are lean-to garage (attached) or a floating deck in an entertainment area which is attached to the flat. Or a problematic one is a fully enclosed and attached conservatory to create an extra room or a carport which now has a garage door, so it is fully enclosed with sides. Or sometimes it is simply a stand-alone garden shed.

Updating a flats plan or converting a cross lease to fee simple can involve legal, survey and council/subdivision steps, and may require agreement from the other owners. Costs and timing depend on the property and local requirements.