Investing in Property
Cross Leases Explained
A cross lease has multiple owners that hold shares between land, then each owner can lease a specific area to the other property owner. This is detailed in a Leasing document registered on the title and refers to a specific Rental plan set up by a surveyor.
Everything is important when it comes to the details of this type of rental agreement. A flat’s planning is particularly important because it concerns the outline of the buildings and its surrounds — this acts as the boundaries of each property owners’ “exclusive use area”. Cross-leasers should always check that the flat’s plan corresponds to the buildings outlined on these sections. If there are additional structures, it could present as a legal issue.
To help customers with their cross lease issues, and whether you have a big problem on your hands, we’ve prepared a step-by-step guide below.
If the structure is on common property, and someone has built an additional property next to the initial flat outline, then that is considered an issue. This is typically because one owner has taken more properties than what they have agreed to, since it is supposed to be shared property. This makes the cross lease immediately defective.
However, you’ll need to check and see if the structure is attached — whether that’s a garage, storage lot, carport or a deck. If it isn’t attached, there isn’t much of an issue due to you just needing written consent from the Leasers to have the addition on your property. A signed letter, even if it’s just one paragraph, is eligible for written consent. However, check with the property vendor if you have more concerns over the addition to your property.
If it is attached to your property, even if its on surrounding land, then you’ll need to check if it is attached and enclosed. If it’s attached but not enclosed, you should be fine, as long as you get written consent from the property owners. This applies to items like decks or carports.
If it is attached but not enclosed (as is the case with things like larger constructions), you have a big problem. This is what we call a defective file, as the structure of the property does not match the blueprint, or the agreement between leasers. This means that the property is not validly leased.
Files that may be possibly defective should always be disclosed to potential buyers, as banks and other lenders may be hesitant to lend money to new investors. Insurers will also be less willing to approach your property for this reason.
To fix defective files, flat plans should always be updated immediately regarding the addition to the property, and the cross lease converted into a new file for added measure. Both options require you to hire a lawyer, a surveyor and Council consent. These options are not fast nor cheap, but thankfully we will be able to help you with this situation.