When you are listing a cross-lease property for sale it is important to obtain a copy of the title and the flats plan.  You should check that the flats plan correctly reflects the location and size of the existing dwellings and improvements on the land. 

Do some research

We recommend that you view the flats plan with your knowledge of the property (from viewing it), and together with a Google search view of the property.  You should also of course ask the vendor to check that the plan is correct.

It’s important to ascertain any issues BEFORE publicly listing the property for sale.  This way you give your vendors the best opportunity to rectify and consider any issues involved with selling the property. 

Given the current market, it is common to have only a couple of weeks between listing a property for sale and the tender or auction date.  Therefore, if any issues arise during this time, there is very little time for both the vendor and purchaser to research and work out the best way forward. 

What is a defective cross-lease title and can it be remedied?

OPTION A:  If the following applies, remedy can be by way of written consent by ALL flat owners in the cross-lease development:

  1. If the improvement is NOT ATTACHED to the “flat” or dwelling and IS on the exclusive use area for that “flat”.  For example, a garage or granny flat.  This structure can be either enclosed or not.
  2. If the improvement is ATTACHED to the “flat” or dwelling and IS on the exclusive use area for that “flat” but is NOT ENCLOSED.  For example, a carport. 

Such written consent should be signed and dated, and should include the names of all registered proprietors in the cross-lease development, the title and lease numbers and an explanation of exactly what is being consented to.  By way of example:

We, [REGISTERED PROPRIETORS] of [insert certificate of title references here] as Lessors under Lease Numbers [insert lease numbers] respectively, hereby consent to the erection of the garage located on the north-east corner of the area marked “B” on Deposited Plan XXX (being the exclusive use area of the owner of Flat 2).

It is worth noting that such consent can be relied on even after a change in registered proprietors and it should be passed on to new owners as part of the sale disclosures. 

OPTION B:  If the following applies, remedy will need to be by way of updating the title:

  1. If the improvement is ATTACHED to the “flat” or dwelling and IS ENCLOSED.  For example, an extension to enlarge (or reduce) a room, an attached indoor-accessed garage, or a conservatory.
  2. If the improvement is located on (or is partially located on) the common area but is designed for the exclusive use of one flat owner.  For example, a garage that has been erected on what was originally a common area (for example a shared driveway).
  3. If a structure has been REMOVED from the flats plan, but is referred to as part of the legal description on the title.  For example, if the legal description is “Flat 1 and Garage A on Deposited Plan XXX” and the garage has been subsequently demolished.  In this example, it could be more cost effective to reinstate the garage, than to update the title.

If the title needs to be updated, the following will need to be undertaken (which can result in a cost of ten/s of thousands of dollars) and can take several months to complete:

  1. The land will need to be resurveyed;
  2. New legal titles will need to be issued;
  3. All owners in the cross-lease development will need to sign the documents to enable the issue of new titles;
  4. Mortgagee consent of all owners in the cross-lease development will need to be obtained; and
  5. Council consent will need to be obtained.  We note that Councils treat this similarly to a “subdivision” and can impose requirements in order to give such consent, some of which can be costly.  For example, upgrading the fire protection between any dwellings that are attached to another, or upgrading the services to the property, particularly if the services are shared.

Other matters to note

If any improvements have been undertaken to the property, we recommend that you check that Council consent was obtained.  If Council consent was not obtained, this could cause further issues with the sale.  Even if Council consent was obtained, this will not change the position regarding a defective title.

As you may already be aware, it is possible to convert cross-lease titles to fee simple titles, which can make the property more saleable, or even increase the value of the property.  In order to undertake this option, all the matters set out in 3(a)-3(e) above will still need to be carried out.

What are the implications if the vendor chooses to list the property for sale without correcting a defective cross-lease title?

The issue of most concern is that a defective title will need to be disclosed to a purchaser’s bank/lender.  In our recent experience, banks/lenders have been taking a cautious approach with defective cross-lease title issues. 

Each case will of course be looked at with all factors being taken into consideration.  While it does not always mean that finance will not be able to be obtained, it may reduce the pool of purchasers that are able to obtain finance and therefore purchase the property.

We have seen instances of a purchaser “renting” or taking early possession of a property prior to settlement while the vendor undertakes the updating of new titles.  Consideration, care and finer details need to be taken into account if investigating this option. 

Disclose, disclose, disclose…  An agent does of course need to disclose any defect in title (in writing) to any prospective purchaser.