Cross Leases – what are they? 19 Jan 2018

When looking to purchase a house, you may note that some properties are marketed as “cross leases”.  This article seeks to clarify what cross leases are, and what you need to look out for should you purchase one.

Cross leases were originally created as a convenient and cheaper alternative to a fee simple subdivision. As they are now included under the definition of subdivisions, cross leases are becoming a less desirable form of ownership. It is important to understand exactly how they operate, as they involve greater obligations than a fee simple title.

 

Fee Simple vs. Cross Lease

 

A “fee simple” title grants you the most freedom and access. It bestows the full, permanent and absolute occupancy (tenure) in the land and will last indefinitely (subject to the rights of the Crown in some instances).

A cross lease property still involves an underlying fee simple title; however each cross lease owner owns only a share in the overall property. In addition, each owner leases individual flats from all the fee simple owners. The lease term will typically be limited to 999 years. The Certificate of Title will include a Flat Plan, which highlights the area of each flat, the common areas (such as a shared driveway) and restricted areas that each owner has private use of, such as a garden.

Example

 

Alex, Bradley and Charlotte own three cross-leased properties: Flat A, Flat B and Flat C, on 1 Example Street. As a group, they collectively own the land, with no exclusive ownership of any specific part of the land. Instead, they each hold a one-third “undivided” share in the fee simple estate.

As a group, Alex, Bradley and Charlotte lease the flats to themselves individually. So Flat A is leased to Alex, Flat B to Bradley and Flat C to Charlotte. Their leases (which are registered on the title), provide exclusive use and enjoyment of the flats for each owner.

Should Alex wish to sell Flat A, he will be selling his 1/3 interest in the underlying fee simple title and his interest in the Flat A lease.

Tips on things to look out for:

 

In our experience, many cross lease owners simply ignore their obligations, which can cause issues down the track, most commonly when you come to sell the property.

Cross leases can be complicated. If you are considering purchasing a cross lease property, it is essential that you obtain legal advice. Likewise, if you are thinking of selling your cross lease, you should also discuss your options with your lawyer before you take the property to market.

 

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com