Cross lease CSDs

What is a cross lease?

Originally developed in the 1960s, a cross lease is a form of land ownership devised by lawyers to circumvent restrictive Council planning requirements for urban subdivision. Cross leasing was not considered to be a subdivision under the Municipal Corporations Act 1954, therefore not subject to the rigorous Council regulations, delays, and associated fees. Significant development cost advantages could also be gained by providing shared service connections and common spaces. Cross leases continued to be popular right through to the enactment of the Resource Management Act 1991 (RMA). This Act stipulated that a cross lease is a subdivision and thus subject to all the same rules and requirements that apply to a fee simple subdivision. Cross lease subdivision continues to this day, however the overwhelming majority of cadastral survey datasets (CSD) are for the purpose of updating deficient lease and restrictive covenant areas on existing cross lease plans, also referred to as flat plans.

Section 2 of the RMA defines a cross lease as “a lease of any building or part of any building on, or to be erected on, any land

1. that is granted by any owner of the land; and
2. that is held by a person who has an estate or interest in an undivided share in the land”.

A cross lease subdivision is the subdivision of land into two or more building lease areas (the buildings to be leased), and associated covenant areas over other portions of the site. The subdivision creates:

• an undivided share in all of the underlying fee simple estate as tenants in common (e.g. for a two area subdivision, an undivided ½ share in Lot 1 DP 12345);
• a leasehold estate for the lease of a building that is shown on a flat plan (usually for a term of 999 years). Each building (or part) is then cross leased to an owner as lessee, granting them exclusive use of the building, with all of the owners in the development as lessor.
• covenant areas setting out any exclusive use areas of the land that attach to the lease
• common areas (if any) able to be used by all owners.

The term “cross lease” refers to the actual leases in a cross lease development but is also generally used to describe the whole property ownership structure.

A single composite record of title - cross lease, is issued for the land being a share in the fee-simple and the leasehold estate for the buildings as shown on the cross lease plan.
 

The grant of a cross lease is included in the definition of a subdivision under s 218(1)(a)(iv) RMA and the subdivision requirements of that Act apply, including the requirement for subdivision consent from the relevant territorial authority, unless:

• the cross lease is a lease in substitution for an existing cross lease and the existing deposited flat plan is being used without alteration. The existing lease may have expired or been surrendered. Where a cross lease is surrendered and re-granted, the new cross lease can be treated as a lease in substitution for the purposes of s 226A RMA, or
• the cross lease plan is yet to deposit but has a certificate under s 314 of the Local Government Act 1974 endorsed on it (s 408(1)(b) RMA).

It is the creation of the lease of the building that is the act of subdivision. It is the leased building that becomes the 'allotment' under the RMA, not that portion of the head title that the building rests on. [s.218(2)(b)(i) RMA]. A consequence of this, is that the allotment consists of the actual vertical and horizontal dimensions of the original leased building. The depiction of the building on the deposited plan is solely for identification purposes. The plan only purports to depict the outer parameters of the leased area to enable identification and not all facets of its three-dimensional shape. It is not therefore seen as necessary for instance, for the original plan to show details such as overhanging eaves, porches and the like. The cross lease area may include any structure attached to the building, such as a deck or conservatory plus any ancillary building to a dwelling, such as garages and sheds. Historically, cross lease areas have generally been depicted on a cross lease plan as the building footprint at ground level.

The major problem with cross lease tenure is that it can become defective when any alterations or additions (horizontal and vertical) are made to the cross leased building structures depicted on an existing cross lease plan. Any such alteration will encroach either onto a contiguous restricted area or onto a shared area to which the lessee has no leasehold title. If not updated by the deposit of a new cross lease plan, the alterations have created a defect in title because a lessee will be exclusively occupying buildings or land over which they do not hold tenure. This often creates problems when on-selling a cross lease property. However, just because there is a defect in title it does not mean there is a legal compulsion to update the lease areas on the cross lease plan. Due to the cost and time factors, many existing cross lease plans do not reflect what is physically built/occupied on the ground. A cross lease update will also require a subdivision consent under the RMA.

Key terms

Covenant – Flat/Cross lease

A Landonline parcel intent for covenant areas depicted on a cross lease plan. These covenant areas define exclusive use areas of the land that attach to the leased buildings and shared areas (if any) able to be used by the owners.

Cross Lease Building

A Landonline parcel intent for a lease area over a building depicted on a cross lease plan to enable a record of title comprising a leasehold estate and a share of the estate in fee simple to be issued.

Flat plan/Cross-lease

A Landonline survey purpose for a CSD showing buildings that are to be leased, and areas to be subject to covenants, in a cross lease development.

Permanent Structure Boundary (PSB)

A boundary related to a building or recognisable physical structure that is likely to remain undisturbed for 50 years or more (see schedule 2 CSR 2021). A permanent structure boundary must follow a described part of a permanent structure or be unambiguously defined in relation to points on the interior or exterior of a permanent structure (r 56(2)).

Base land requirements

Base land means the underlying parcel or parcels of land that are subdivided into a cross lease development, including an access lot or share in an access lot associated with that land. Any land or share in land added to the cross lease development becomes part of the base land.

The land must be capable of being held in one record of title. In situations where the land is held in more than one title the territorial authority may require the records of title to be amalgamated, or a certificate imposing conditions under s77(4) of the Building Act 2004 for erection of buildings on two or more lots to be registered first.

Limitations as to parcels do not need to be removed provided it is clear that if the limitation is uplifted, no building will encroach over the boundary. This will need to be assessed by the surveyor and evidence included in the CSD. This may be provided in the form of building to boundary offsets and occupation diagrams depicted on the plan graphic or included in the supporting documents.

Any boundary of the base land of a new cross lease development, where its extent and location as defined in an approved CSD are insufficient for the determination of its compliance with the accuracy standards of rule 27, must be first redefined and included in a new primary parcel (r 13 & r 35). This includes underlying affected boundaries distorted by ground movement (r 109(1) and r 110(4)). The following are circumstances where a full land transfer (LT) survey is required:

• Where there are multiple underlying titles with differing land statuses which cannot be amalgamated, for example a mix of limited and ordinary titles
• Where the land in the cross lease development is less than all the land in the title
• Where the land being dealt with has a substantial misclose, insufficient data, or poor survey definition from very old underlying surveys AND a building lease area is close to the parcel title boundary such that the accuracy requirements of rule 57 cannot be complied with.

If any part of the base land of a cross lease development is in the coastal marine area, a separate LT Subdivision CSD showing that land as Common Marine and Coastal Area must be approved before a cross lease plan can be submitted for approval under Section 223 Resource Management Act 1991. See s 237A RMA.

Similarly, if any part of the base land of a cross lease development is required to vest as Esplanade Reserve, a separate LT Subdivision CSD showing that area of reserve to vest must be approved before a cross lease plan can be submitted for approval under Section 223 Resource Management Act 1991. See s 237(3) RMA.

Standard cross lease

A standard cross lease development is a subdivision where all the base land is fully developed into building lease areas and covenant areas (for exclusive use or shared areas) in a single stage together with the deposit of one plan. A standard cross lease plan shows the subdivision of a parcel of land to create:

• two or more Cross Lease Building lease parcels, and
• with or without a number of Covenant - Flat/Cross lease parcels.

Each building (or part) on the base land that is to be cross leased must be shown to scale on the cross lease plan. The balance areas are then shown as covenant parcels which define exclusive use and common areas over the base land that attach to the lease. Strictly speaking, covenant areas are not required to be defined over the balance base land, and this was common practise for earlier cross lease plans. However, new cross lease plans will nearly always depict new and existing covenant – flat/cross lease parcels over the balance land.

Examples of standard cross lease plans, both present and historic

Staged cross lease

A cross lease property may be developed in stages where new building lease areas and lease-related covenant area(s) may be registered over a portion of the fee simple estate and the remaining balance area is left vacant awaiting future development and lease registration. The remaining area without flats or restricted areas retains its fee simple description with the appropriate shareholding. Covenant areas can be allocated to undeveloped areas to identify the undeveloped area in the event of purchase. Each stage of a cross lease development requires a new CSD so there may be several live plan numbers over the same fee simple parcel at any one time.

Covenant areas for future development are important to avoid disputes between a developing owner and the existing cross lease owners. To ensure that the first stage flat owners will allow the developer to continue and complete the total development, the lessees give an irrevocable power of attorney allowing this. One of the most common forms of a staged development is to create a composite title about an existing dwelling on the front or back portion of the site and leave the balance vacant portion to be developed later into additional lease areas. The developer is then free to retain or dispose of the undivided half share of the fee simple title with the rights to develop this balance area protected by the lease agreement or by covenants.
 

Examples of staged cross lease plans

Fourth stage of uncompleted cross lease development:

Completed 3-stage cross lease development:

Uncompleted 4-stage cross lease development:

Cross lease update

Where changes are made to the footprint of an existing cross leased building, or where new buildings are added, such as a house extension or new garage, then the cross lease title may need to be updated to reflect the changed building lease footprint. This is commonly known as a cross lease update and will require a new cross lease plan to define revised lease and covenant areas. A cross lease plan may be also used to define revised covenant areas on an existing cross lease development where there are no changes to the building lease areas.

Any updating of a cross lease plan that amends existing lease areas or creates new lease areas is classified as a subdivision and requires subdivision consent. It is important to note that the building consent authorising the construction of the additions or new building does not automatically update the cross lease title, so a separate subdivision consent needs to be obtained.  For the avoidance of doubt, amendments to cross-lease covenant areas do not constitute a subdivision.

Any variation to the location or extent of a lease or covenant area must be treated as a new lease or variation to an existing lease.

Most defective cross lease titles are identified when a property is put up for sale. Alterations are sometimes carried out without the consent of the co-owner(s) of the underlying land, and (or) without any update to the cross lease plan to identify the alterations. This can mean that a house extends beyond the leased area and is a serious issue when it comes time to sell or otherwise deal with the property. An updated cross lease plan may be required before the sale can be completed and can be an unexpected cost for the vendor.
 

Examples of cross lease update plans

Area 1 DP 561822 supersedes Flat 1 DP 140278:

Area 3 DP 557843 supersedes Flat 2 DP 92363:

Cross lease conversion

This is where all composite records of title of an existing cross lease development are converted to independent fee simple titles, or to unit titles. It is well recognised that fee simple tenure generally provides significant benefits over cross lease tenure.

Cross lease tenure has the potential to become problematic when several deficiencies emerge. Issues of unconsented structures, building/demolition consents granted without the notification of the neighbours, lack of exclusive use areas and ineffective governance provisions are very common and make the conversion to independent fee simple records of title an attractive prospect.

The main hurdles in undertaking a conversion are obtaining consent and agreeing costs with all the cross lease co-owners and their mortgagees, possible additional servicing, building code works and higher surveying, legal and Council fees.

The requirement for Council subdivision consent was confirmed by a recent declaration by the Environment Court that confirmed a cross lease conversion to be a fee simple subdivision under the RMA 1991. Re McKay 2018-NZEnvC-180.

The proposed fee simple title boundaries should generally follow the established land use boundaries with reciprocal easements over previously shared covenant areas. Any significant changes to the established land use could trigger additional resource consent requirements.

The Unit Titles Act 2010 (UTA) also allows for the owners of cross lease developments to convert their existing scheme to a unit title development under Part 4 Subpart 3 UTA. Although rare, such conversions are also available to flat and office owning companies for converting licences to occupy into unit titles. In order to convert the owners must either pass a special resolution by 75% of the members or obtain a High Court order s192 UTA. Sections 11 and Part 10 RMA don’t apply to Part 4 Subpart 3 UTA by virtue of s13(2) UTA, therefore no approval or subdivision certificates are required under the RMA s223. 224(c) or 224(f).

The boundaries of the proposed principal units must be exactly the same as the lease boundaries  depicted on the existing cross lease plan (s191(1)(b)(ii) UTA). Should the lease boundaries not be adequately defined on the existing plan then the surveyor should supply a statement confirming that in their professional opinion, the boundaries of the principal units are exactly the same as the current boundaries depicted on the cross lease plan.
 

Example plans

DP 11857 Otago, converted to DP 555434 (conversion of flat company lease to UT):

LT 561437 (conversion of office owning company licences to UT):

DP 63558 (flat 1) and DP 63733 (flat 2) Canterbury, converted to fee simple DP 341977:

Adding or removing land

Land can be added to an existing cross lease development. If the buildings are not affected, then a new cross lease plan depicting the buildings in relation to the enlarged underlying area is not required. A lot can be transferred to the registered owners of the cross lease and amalgamated with their titles. A covenant plan would be acceptable in this instance to define the altered restricted/common areas and variations to the lease would be registered. If the land being added to the existing cross lease included buildings to be leased, then subdivision consent would be required under the Resource Management Act 1991 and a new cross lease plan would be required to define the new cross lease building areas.

If the land to be added is only a portion of an existing parcel, then a LT subdivision or survey office (SO) legalisation plan will be required to first create a separate parcel capable of being transferred to the cross lease development.

It is also possible to remove land from an existing cross lease development. Instances of this include the taking of land for road under the Public Works Act, or the provision of esplanade reserves and common marine and coastal area required on subdivision under the RMA. An LT subdivision or survey office (SO) legalisation plan of the base land must be carried out to facilitate the removal of land. The plan will show a parcel for the land being removed and a parcel for the land that will remain as the base land for the cross lease development. As with the addition of land, if the existing building lease areas are not affected then a new cross lease plan is not required. A covenant plan would be acceptable to define the altered restricted/common areas.

The estate of the land being added to the cross lease development must be compatible with the estate of the cross lease development.

New easements and covenants

New easements and covenants, other than those for exclusive use or shared areas, can be registered over, or in favour of, the base land estate in conjunction with a new or updated/staged cross lease development. The definition of these new parcels would be included on the new or updated cross lease plan. The new non-primary parcels would need to be depicted on the plan graphic and the parcels must be spatially captured on an S/T sheet to provide a title diagram. The CSD survey type would be Flat Plan/Cross lease with Survey Sheet. These easements would need to be tabled in accordance with rule 93.

Cross lease plans in areas of ground movement

New cross lease developments

Where ground movement has distorted any of the underlying parcel boundaries of a new cross lease development by more than the relevant accuracy tolerances in rule 27, then the affected boundaries must be defined by survey and ground marked and a new underlying parcel created before any new composite records of title can be issued (r 108, r 109(1) & r 110(4) CSR 2021). This requirement applies throughout the country, including greater Christchurch.

Existing cross lease developments

Where a new flat plan updates or further develops an existing cross lease development, for example, a subsequent stage flat plan in a staged development, then rule 110(2) requires an underlying parcel boundary affected by Canterbury earthquake movement to be defined by survey and marked if a new lease area or covenant area parcel coincides with or intersects with it. The redefinition of the Canterbury earthquake affected boundaries may be recorded on the new flat plan (r 111). This allows the relevant records of title to be updated. Rule 111 does not apply to any ground movement outside of greater Christchurch or to ground movement in greater Christchurch that did not result from the Canterbury earthquake sequence.

If the underlying parcel boundaries are affected by movement other than Canterbury earthquake movement, the new non primary parcel boundaries may be inaccurately determined where they intersect or coincide with the underlying boundaries and the requirements of rule 51(2) apply.

Height-limited boundaries

Cross lease building parcels are defined by permanent structure boundaries, however covenant areas on an existing cross lease plan may have been defined with a height limited boundary. Replacement cross lease plans in these circumstances are likely to be rare. If this situation arises, advice should be sought from LINZ via a “Survey Information Complex” Landonline request.

See the following guidelines for more information on requirements in areas of ground movement:

• Ground movement.
• Re-establishing Canterbury earthquake affected boundaries in greater Christchurch.

CSD requirements for cross lease plans

General requirements

A CSD with the purpose of flat plan/cross lease supports title issued under the requirements of the Land Transfer Act 2017.

A cross lease plan must:

• define the boundaries of the building lease areas and covenant areas in accordance with the CSR 2021
• clearly depict the location of lease and covenant boundaries and their relationships to other boundaries that are required to be shown on the plan. This may require cross section diagrams to show relationships in the vertical dimension (rules 83, 86, 97, 98, 101 & 102)

The definition of a cross lease under section 2 RMA as a lease of any building or part of any building means that lease area parcels on a cross lease plan will be defined by boundaries that follow a described part of a permanent structure in nearly all instances. The exception is where a building to be leased coincides with or extends over an underlying parcel boundary. The lease boundary would then follow the underlying parcel boundary. Each parcel must be a single contiguous space with the boundaries defined by depiction and/or description on the title diagram.

Covenant - flat/cross lease parcel boundaries must be defined in the horizontal extent by the types of boundaries specified in rule 46(1). Permanent structure boundaries are most commonly used, but right-line and arc boundaries are also common. If the vertical extents of the covenant parcels are restricted in height, then these covenant parcel boundaries must be defined by either a height-limited boundary or by a permanent structure boundary (r 46(2) CSR 2021).

Individual cross lease boundaries must be defined using only one form of boundary. For instance: the same horizontal boundary must not be defined both by a right-line boundary and by a permanent structure boundary. Similarly, the same vertical boundary must not be defined by a height-limited boundary and a permanent structure boundary.

Unchanged lease boundaries common with a new lease parcel can be adopted or accepted from existing cross lease plans already approved over the base land. A PSB boundary accepted under rule 58(4) requires a boundary annotation to this affect on the survey diagram (r 88).  If there is no survey diagram then the annotation must be made against the accepted boundary on the title diagram. An existing covenant boundary can be adopted, but cannot be accepted under rule 58(4), which only applies to cross lease parcels (refer to rule 58(1) and the definition of cross lease in section 2 RMA). Where the definition of an existing covenant parcel boundary does not comply with the requirements of the CSR 2021 for that type of boundary, the boundary must be redefined in the same position to comply with the CSR 2021, or a new boundary must be defined.  If the boundary is redefined in the same position, the survey report must confirm that the spatial location and extent of the boundary has not changed and outline the decisions made and information used to define the boundary (r 72(i)). Where it is not obvious that the boundary is either a new or a re-established boundary, the survey report must clarify the situation.

Refer to Using an existing restrictive area boundary for new restrictive area parcel

Where an existing cross lease development is supplemented by a new updated or staged cross lease plan, the existing unaffected lease and covenant boundaries do not need to be depicted. However, it is recommended that they be shown on the new title plan to provide an overall picture of all current cross lease interests over the base land. This will also illustrate the spatial relationship between all live non-primary parcels and their relationship with the underlying boundaries.

Adoption sources for the underlying parcel boundaries must be included in the Record of Survey (not just the survey report), e.g. on the plan graphic (r 78).

Ensure that when the building structure physically extends beyond the underlying title boundary that this portion of the building is excluded from the lease. The plan graphic is to show the encroachment dimensions and position relative to the boundary, with the annotation ‘Area Excluded From Lease’`.

Further information on height-limited and permanent structure boundaries is available at:

• Permanent Structure Boundaries.
• Use of height-limited boundaries.
• Datum and connection requirements for height-limited boundaries.
• Capturing of height-limited parcels.

Capture requirements for cross lease plans

Lease and lease-related covenant parcels must be captured aspatially in Landonline and depicted on a ‘plan graphic’ supporting document. The plan graphics will bundle in the title plan as the title diagram. The parcel type component for both lease and covenant parcels must be ‘Area’. Covenant area appellations may also be ‘Height Limited Area’ where applicable (r 43). The lease and covenant 'Areas' are then labelled with a unique identifier, being a number, which may be followed by a letter for a lease parcel, and a letter or a letter followed by another letter for a covenant parcel (r 45).

Covenant areas shown as “common area” may be adopted if shown on a prior CSD and are not subject to change.

CSD Type for a cross lease plan must be ‘LT’.

Survey purpose must be Flat plan/Cross-lease or Flat plan/Cross-lease with survey sheet. The ‘with survey sheet’ option may only be used if the CSD includes any spatial capture resulting in the inclusion of T and/or S sheets.

Dataset Type for a cross-lease plan must be ‘survey’.

Parcel Intent: “Cross Lease Building” for lease parcels and “Covenant – Flat/Cross lease” for exclusive use area or common area parcels.

The Dataset Description on the CSD must include the survey purpose and the appellation of the land under survey (r 71(c)). For example:

• Areas on Lot 1 DP 12345
• Area 1 on Lot 1 DP 12345
• Height-limited Area AA on Lot 1 DP 12345.

The dataset description will automatically display on each system-generated sheet (if any) of the Title Diagram, but should also be shown on each plan graphic sheet of the Title Diagram for the purposes of clarity (r 107).

Aspatial Capture: Ensure all parcels are aspatially captured and correctly tabled in the parcel list with the appropriate intent. All new or extinguished parcels on the plan must be accounted for in the parcel list.

Extinguishing lease and covenant parcels. Existing parcels that are being replaced by new/updated parcels should be extinguished if they have a survey appellation and a legal description in Landonline. Parcel status can be found via, spatial search / survey search /parcel appellation/parcel type none/enter plan number. Only parcels in the results panel that have both the survey and title boxes checked can be extinguished. Parcels with just the title box checked have a title appellation only and cannot be extinguished (see figure 2 below). The survey report should note where subject parcels cannot be extinguished. Existing unchanged lease and covenant parcels should not be extinguished and re-captured in the CSD.
 

Line types

The boundaries of new lease parcels and underlying parcel boundaries must be thick solid lines on the Title Diagram. Proposed covenant area boundaries must be thin solid lines (Schedule 7 clause 3).

Where existing unaffected lease and covenant parcel boundaries on a new staged or updated cross lease plan are depicted then they need a line type that differentiates them from the new lease and covenant boundaries. It is recommended that thin dashed line types be used for existing covenant boundaries and medium dashed line types be used for existing lease boundaries. Any lines depicting occupation (buildings, fences, and so on) must be clearly distinguishable from the line types specified in Schedule 7 clause 3. Internal building divisions within new lease parcels, such as decks, may also be shown but should be a dashed line type. Estate boundaries should be shown for rare occasions where the development has been permitted to extend over more than one record of title.   

Unchanged lease and covenant parcel appellations on the base land should also be depicted but the font size should be significantly smaller than the font size used for the new parcel appellations.

Line types and appellations on DP 557843 provides a good example of compliance with CSR 2021 Schedule 7(3) & (4) and 107(presentation on the title diagram).
 

Existing easements and covenants on flat plans

Existing easements over the base land to be retained, both subject and appurtenant, do not need to be depicted or scheduled on cross-lease plans, but may be shown if they are correct and do not create ambiguity on the plan graphic.