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Ownership and Tenure

Freehold, leasehold, cross lease, company share and unit titles explained.

Freehold Estate

This is the most common form of tenure in New Zealand and it represents ownership of land and buildings with very few restrictions.

Freehold is an abbreviation of the term freehold estate in fee simple.  Technically speaking, it is a tenure of real property, the duration of which cannot be determined, and by which an estate in fee simple is held.  In other words, ownership of property with virtually no restrictions on the ownership rights.

Freehold does not mean mortgage-free.

 

Leasehold Estate

A form of ownership where the land is leased (by a lessee) from the landowner (the lessor).

  • Leasehold is a form of property tenure where one party buys the right to occupy land or a building for a given length of time.
  • The person leasing the land (the lessee) pays a rental to the landowner. Sometimes the lessee will own the buildings.
  • The lessee’s use of the land may be restricted and the rent will be defined in the terms of the lease. 
  • A lessee can sell the lease but may need consent of the landowner first. 
  • At the end of the lease term the lease may be renewed or the property may pass back to its owner. 

 

Lenders and leasehold title

A lender may restrict the term of any loan secured by leasehold property to the unexpired term of the lease.  This may be relevant if the unexpired term of the lease is less than 30 years.

If the lessee has a right of renewal of the lease that would provide for ownership to exceed the proposed loan term, then a lender may not restrict its loan term.

   

Cross Lease

Cross lease is a hybrid form of multi-unit tenure. 

A cross lease provides title whereby property owners share ownership of the land and each owner leases their building from the other owners, which together form the cross lease title.

A cross lease is a hybrid form of multi-unit tenure in which each owner has an undivided share of the underlying freehold as tenants in common, and is granted a registered leasehold estate (usually for 999 years) of the particular unit or area occupied.

The cross lease documentation will specify exclusive areas of occupation as well as the shared or common areas (if any) in respect of which plans will be registered outlining such areas as well as the improvements within each leased area.

 

Company Share Title

This is a form of property ownership represented by owning shares in a company that owns a property, but not represented by direct ownership of the land and building itself.

  • Company share title is most common with multi-unit properties like apartments. 
  • Title to the land and buildings is owned by a company.
  • The owner of a company share apartment will not own (i.e. have any title to) the apartment, but will own an equity share in the company that owns the land and buildings.  The owner's occupation of the apartment is normally represented by a licence to occupy. 

 

Lenders and company share title

A lender cannot register a mortgage over a company share title in the same way it can over freehold or leasehold title.  Therefore, the lender cannot exercise the same rights as mortgagee.  Some lenders will not accept company share as collateral for a loan.

For lenders that will accept company share title, the collateral normally required is an unregistered mortgage over the licence to occupy, a signed blank share transfer form plus a deed of covenant from the company.  This gives the lender some rights to take possession and sell the apartment to recover its loan if the borrower defaults on his or her commitments.

A registered valuation is almost always required when purchasing a company share apartment.  Legal fees related to buying the apartment are usually also higher than for more common forms of tenure.

 

Unit Title: Freehold or Leasehold

Unit title is a form of ownership which is common in multi-unit properties (like apartments) where title to individual units is set out in a unit plan.

Each owner has freehold or leasehold title to his or her individual unit, and any garage or parking space attached to it, as set out in a unit plan.

Owners of units have common legal areas and share duties for any common property such as driveways and stairs.

A body corporate is normally required for the administration of a unit title arrangement.

Understanding the types of land ownership in New Zealand - by settled.govt.nz