New Zealand Law Society - Cross leases and Re McKay

Cross leases and Re McKay

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Three differently coloured front doors

Love and hate

It would be nice to be able to say that cross leases are loved and hated in equal measure, but that simply isn’t true. The hate very much outweighs the love. Cross leases have many detractors, but few supporters.

I am close to being a supporter, or at worst neutral. Cross leases are a reflection of the ingenuity of property lawyers: they reflect a clever and cogent workaround on subdivision restrictions, and provide a standard-form set of land covenants between neighbours. In small developments, they are often preferable to unit titles, especially given the lack of clarity in many areas of unit titles law (let’s start with maintenance, or the nature of a body corporate, let alone various compliance requirements that are unhelpful on a small scale).

That said, I also acknowledge that times have changed, and cross leases are no longer workaround. And when cross leases go wrong, they go very wrong. Unconsented structures, inconsistent leases, a lack of exclusive use areas, ineffective governance provisions, demolition consents granted without notification to the neighbour – the issues are many. These issues can reflect a misunderstanding of cross leases rather than a tenure problem, but can also be seen to reflect innate difficulties in binding owners together, given that New Zealanders often seem uncomfortable with any sort of co-ownership. The challenges of co-ownership are legion, whether refracted through cross leases, unit titles, shared rights of way, or the emerging case law pursuant to section 339 of the Property Law Act 2007.

Conversion of a cross lease

But the issues aren’t solely legal ones. Surveyors don’t like cross leases either. And one went as far as to seek a declaration from the Environment Court that a conversion of cross lease titles to fee simple titles was not a subdivision under section 218 of the RMA: Re McKay [2018] NZEnvC 180. A successful application would have made the conversion decision one for owners, without local authority input or interference.

An amicus curiae was appointed, and various points were canvassed, including the nature of a cross lease, various criticism of the theory and practice of cross leases, and the nature of subdivision under the RMA. Various parties were served, including the Ministry for the Environment, LINZ, and Local Government New Zealand, but only the New Zealand Institute of Surveyors (now Survey and Spatial New Zealand) got involved.

The Environment Court declined the application, ruling that the conversion process would inevitably involve lines being drawn on a survey plan, and that this aspect made conversion a subdivision under the RMA. The Environment Court also took pains to note that local authorities should not require onerous conditions within subdivision consents for conversion, as the underlying land use would not be changing, and there might be “few, if any, material environmental implications warranting a full-scale assessment of the proposal as if it were a new development” (at [55]). This pointed message to consenting bodies warrants their fullest attention.

For now

For the meantime, then, owners still need the consent of all cross lease owners, the consent of their mortgagees, and the consent of their local authority to convert their cross lease titles to fee simple. Notwithstanding the decision of the Environment Court, it is a brave legislature that ignores these issues forever. As long ago as 1999 the Law Commission expressed its concerns over cross leases. More recently, various research has reconsidered the problems of cross leases and found them wanting, both (in their own terms) as a form of tenure, and (at a policy level) in terms of their impact on intensification and redevelopment – though it can be observed that any property rights can impact redevelopment, and the solutions around promoting intensification and avoiding sprawl extend far beyond cross leases.

My view is that cross leases can be seen to fail systematically, but really fail in individual cases, rather than in every case. There are many bad cross lease stories, and I’ve heard and been involved in more than a few of them – but there are also bad stories with shared rights of way, land covenants, encumbrances, and (of course) unit titles.

A Cross Leases Act 2019?

The noble aim of Re McKay was to seek judicial confirmation that conversion of cross leases to fee simple titles would be a simpler process, a decision for owners (and their presumably cooperative mortgagees) rather than one in which local authorities should intervene. The application was unsuccessful.

Further reform is necessary. What I would like for Christmas is Unit Titles Act amendment. But perhaps in the early new year, a Cross Leases Act 2019 would be a significant step forward, and a better way to deal with the many and varied problems of cross leases.

Thomas Gibbons is a director of McCaw Lewis. He writes and presents extensively on property law and is author of A Practical Guide to the Land Transfer Act 2017 (LexisNexis NZ Ltd).

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