Cross-Lease vs Fee Simple: Should You Convert Your Cross-Lease Title?
Converting a cross-lease title to fee simple is not automatically an improvement. Depending on the property and the circumstances, a cross-lease may provide protections that are worth considering before agreeing to a conversion. A recent matter involving a proposed development in Christchurch provides a useful example of why.
Why Does the Neighbour Want to Convert the Cross-Lease?
A client of mine was recently approached by the owner of the property at the front of her cross-lease about converting their respective cross-lease titles into fee simple titles. She wanted to know whether agreeing to the conversion was a good idea.
I explained that even the question of whether a fee simple conversion would add value to the properties was not necessarily straightforward. Two different valuers could provide two different views as to whether the conversion would increase the value of the properties concerned.
An important part of the discussion was therefore understanding why the neighbour wanted the titles converted. When I asked my client what she thought he intended to do, she explained that he was interested in developing his share of the underlying land by building one, and potentially two, new dwellings.
While she recognised that a new dwelling could have benefits, she was concerned about what further development might mean for the privacy and sunlight she currently enjoyed at her property. The proposed conversion therefore became about more than the form of title. It raised the question of what rights the neighbour would have to develop the land if the existing cross-lease arrangements were removed.
Her property is located in a medium to high-density area of Christchurch City, where the zoning allows for higher-density housing and potentially new dwellings taller than the existing single-storey dwelling. Converting the properties to fee simple titles would give the neighbour the rights to build and develop his parcel of land in accordance with the property's zoning.
Could Keeping the Cross-Lease Protect the Property?
At that point, my client asked whether she might actually be better off keeping the cross-lease title, and whether doing so could prevent the proposed development.
Given her particular concerns about privacy and sunlight, the answer to both questions was yes. The terms of her cross-lease restricted development of the neighbouring property where that development changed the size, positioning or height of the existing dwelling.
In her circumstances, the cross-lease therefore provided a level of protection over how the neighbouring property could be developed and, in turn, protected aspects of her enjoyment of her own property.
Consider the Consequences Before Converting a Cross-Lease to Fee Simple
The important point is that converting a cross-lease title to fee simple should not automatically be treated as an improvement. The practical consequences of the change need to be considered alongside any perceived benefits of conversion.
If you are approached about converting a cross-lease property to fee simple ownership, it is worth considering not only what the change may mean for the title itself, but also why the conversion is being proposed and what it could mean for the future use and development of the neighbouring property.
For my client, retaining the cross-lease protections was important because of the effect future development could have on her privacy and sunlight. If you are in a similar situation, I would encourage you to consider carefully the implications before agreeing to any change.
Further Information on Cross-Lease Properties
For more information about cross-lease titles, you may also find Liz Robb's “Wanting to Buy a Cross-Lease Property? Check the Flat Plan!” and James Murphy's “Understanding Your Cross-Lease Rights: A Major Legal Shift” useful.
If you have been approached about converting a cross-lease title, or would like advice about how your existing cross-lease may affect future development, our Property Team can help you understand your position before you agree to any change.
