Hidden complexities! How do you read a property title before buying in New Zealand? This section is crucial!

Thinking back to when you first arrived in New Zealand, were you drawn to its distinctive homes and looking forward to owning a property here? Buying a home, however, involves more than the building itself: you also need to consider the land it stands on. This makes it all the more important to choose a property that truly suits you and understand the costs and returns involved.

 

Image source: RNZ

 

The four most common types of property ownership encountered when buying in New Zealand are freehold (fee simple), leasehold, unit title and cross lease.

 

This information appears on an important document used when buying or selling property, formally called a Certificate of Title and commonly referred to as the title. Some vendors will provide this document before you buy. You can also visit the Land Information New Zealand website to look up electronic title records for a property you are interested in, including current and historical titles and other comprehensive information.

 

www.linz.govt.nz/products-services/land-records/types-land-records/record-title-current

 

A title contains the following information:

 

Land reference details: The record identifier, land registration district and date the title was issued.   Owner and land details: The owner’s name or the name of the company purchasing the property, the land area, legal land description and ownership type, among other details.   Registered interests: Details of various rights relating to use of the land, such as easements, restrictions under consent notices, and mortgage information.

 

So how should you interpret this information? Start by becoming familiar with the four main ownership types, identified by the most prominent word on the title.

 

What you need to know about freehold ownership:

 

Common for standalone houses and the most widespread form of ownership in New Zealand Offers considerable freedom: owners can own the land independently and indefinitely, have full ownership of the buildings on it, and can freely sell, rent out or lend the property The land can be subdivided and buildings extended or altered with government approval Usually costs more than other ownership types

 

Freehold ownership, also called fee simple (absolute ownership) in New Zealand and commonly described in Chinese as a “full section”, is the most common and simplest form of ownership.

 

If you own a freehold property, you can own the land you purchase independently and indefinitely, along with any property built on it.

 

Interests that may restrict your use of the property include:

 

Rights of way allowing neighbouring owners or utility providers to use part of your land or install service connections Covenants restricting the types of property you can build on the land Restrictions arising under the Resource Management Act 1991 Whether the land is Māori freehold land

 

What you need to know about leasehold ownership:

 

Common for lower-priced apartments, with limited potential for capital growth The titleholder is a tenant rather than the ultimate owner of the land, and their rights depend primarily on the lease terms Rising ground rent and a shorter remaining lease term may affect the property’s price At the end of the lease, the titleholder must return the land and buildings in accordance with the lease

 

Image source: Westpac

 

Leasehold means someone else owns the land and you pay rent to them. Under the terms of the lease, you purchase the exclusive right to use the land and its buildings for a specified period. In some cases, you may own the buildings or other improvements on the land.

 

If you buy a home on leasehold land, the lease will stipulate that:

 

When the lease expires, you must return the land and buildings to the freehold owner under the conditions specified in the lease. If you sell during the lease term, you must transfer the lease to the buyer as well. Ground rent may change and usually increases. Rising ground rent and a shorter remaining lease term may affect your ability to sell your leasehold interest in future. You are advised to consult a professional real estate agent before purchasing a leasehold property.

 

What you need to know about unit title ownership:

 

Common in properties with multiple owners, such as apartments and townhouses Owners automatically become members of the body corporate, which usually has its own rules and is responsible for the entire development Annual body corporate levies are payable, covering maintenance funding and day-to-day management of the whole property

 

Image source: Oneroof

Unit title ownership, also known as strata title or a stratum estate, is most common in properties with multiple owners, such as apartments or townhouses. As an owner of this type of property, you automatically become a member of the body corporate, which comprises all unit owners. Owners usually have their own individual units, while the building’s common areas are shared and managed by the body corporate.

 

As a unit owner, you have the following interests:

 

Your particular apartment or unit and any accessory units included in the ownership, such as a garage, car park, private courtyard or storage area. An undivided ownership interest in common property, such as lifts, laundries, lobbies, driveways and gardens.

 

What you need to know about cross lease ownership:

 

For historical reasons, cross lease properties are common in major cities such as Auckland Owners do not have 100% ownership of the land and need approval from the other neighbouring owners before undertaking any external building or development work Cross lease ownership can be converted to freehold through a resource consent application Once popular, this ownership type is now less widely accepted by the market, resulting in relatively lower prices and less potential for capital growth

 

Image source: NZ Herald

 

Cross lease ownership, commonly described in Chinese as a “half section”, is a legacy of New Zealand’s history. A simple way to understand the “cross” arrangement is that your neighbour borrows half your land and you borrow half theirs. The building may belong to you, but you and your neighbour jointly own the land.

 

If you own a cross lease property, you hold two interests:

 

A share of the freehold ownership held jointly with the other cross lease owners. A leasehold interest in the specific area and buildings you occupy. These leases usually run for 999 years, with rent generally set at a nominal amount that is usually not required to be paid.

 

Cross lease ownership usually means you must obtain consent from all or most owners before making any alterations to exclusive-use areas, such as the building you occupy or your separate garden, or to shared areas. Depending on the specific terms, you may need the other owners’ consent to paint the exterior of your home, make other non-structural alterations, build a deck or put up a fence. The terms of your leasehold interest may also impose restrictions on how you use the property.

 

Cross lease is a relatively complex form of ownership. Before buying, you are advised to speak with a professional real estate agent to understand as fully as possible the terms and legal provisions that affect you.

 

After reading the information above, it is easy to see why people favour freehold ownership for its freedom and simplicity. In practice, however, a large proportion of New Zealand’s existing properties have other ownership types, and each property has its own circumstances and restrictions. Depending on affordability and individual needs, every ownership type has its own buyers.

 

Towards the bottom of a title, the Interests section lists restrictions affecting the property and land. Even freehold properties may have restrictions. These may include consent notices required by the council, land covenants registered by developers or under private agreements, debt claims, easements and setback requirements between a house and the road boundary. If you overlook this section when buying, you may never know what pitfalls the property holds. These could include conditions governing a shared driveway or restrictions preventing subdivision even though the property is zoned for medium-density development.

 

 

Conversely, if you can accept the restrictions on a property that is not freehold and it offers irreplaceable advantages in school zoning, price or location, you can certainly make a decision after consulting a professional. Barfoot & Thompson’s experienced property sales specialists have many years of expertise. You are welcome to visit any branch for advice.