Old Argument over Subdivision of Cross Lease Titles Put to Rest

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Environmental / Resource Management

In its recent decision in Re McKay the Environment Court has determined that the conversion of a cross lease title to a fee simple (freehold) title constitutes a subdivision in terms of the Resource Management Act 1991. 

This is an unsurprising decision given the terms of the Resource Management Act and having regard to the true nature of a cross lease title. 

A cross lease title constitutes an “undivided” interest in the underlying land together with a lease of a building or a part of a building erected on that land.  Take the example of three townhouses erected on a piece of land for which cross lease titles have been issued.  Each owner does not own the particular piece of land under their building or part of the building but owns one-third of the whole of the land.  The three owners of the land then lease to each individual owner the particular building or part of a building and a separate title is issued for the undivided share in the land and the lease. 

As the land is owned by the three owners together, in order to issue separate freehold titles for each one-third share, the three owners together must transfer a one-third share to each owner individually.  They can only do so once separate titles for that interest in the land are issued. Having regard to section 218 of the RMA, which defines “subdivision of land” to mean “the division of an allotment … by an application to the Registrar-General of Land for the issue of a separate certificate of title for any part of the allotment”, it can be seen that an endeavour by our three owners to obtain separate titles for the particular part of their land which is under their building or their part of the building indeed does constitute a subdivision.

As has been suggested by others, legislation which permits the issue of separate freehold titles and incorporates appropriate provision by way of deemed easements for access and services as between the subdivided lots may provide the only cost-effective solution to expedite such conversions.

If such legislation is to be contemplated it should, logically, be accompanied by a prohibition on further cross-leased developments.  Perhaps such legislation should also consider prohibition of arrangements such as those referred to in the recent Clear Span Property Assets Limited v Spark New Zealand Trading Limited decision involving the use of documentation that has the effect of circumventing subdivision requirements.

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