Cross Lease Properties – Qs of exclusive boundaries and council rates.

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ShiroHagen

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# 248766 9-Apr-2019 11:17

According to the rules of Cross lease properties, the owners all have equal share of the freehold title. So with this train of thought – does it follow that the exclusive areas should also be equal in size? Eg for a 800sqm, 2 unit property, minus 100sqm for common property like a shared driveway, leaves 700sqm exclusive area divided by 2. I.e. 350sqm each

So then what happens if unit 1 is 400sqm exclusive area (fenced), and the exclusive area for unit 2 is 300sqm. Does Unit 2 have any legal rights to challenge the internal boundaries?

Similarly, does anyone know how council rate valuations are calculated for cross lease properties? Do Council calculate a land value for the whole title, then split it equally among the number of owners? If so then in the above scenario that would mean one owner is effectively subsidising their neighbours’ larger share of the property with the enjoyment that comes with it!

Anyone seen this before? Or considered before purchasing?

itxtme

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# 2213434 9-Apr-2019 11:31

Cross leases were used mainly in the 70's to subdivide faster and cheaper. Now the rules are the same as for fee simple they dont do so any more. The flat plan is normally associated with a cross lease, so while technically yes you may own a share of the land, the flatplan dictates how it is used. I cannot imagine you could successfully challenge that plan legally. No rates are not necessarily the same, as rates are a calculation of house value and land value. The land value is based on the percentage you own so if the title says that 50% share then thats what you pay the rates on. Equally when you sell it, the value of that land remains 50% share, so you benefit with any capital gain.

Any house value offer would be effected by a flat plan, so when you purchase a cross lease extra due diligence (checking the title & flat plan) is required to ensure you make an offer that reflects the value of the house and land.

Batman

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# 2213437 9-Apr-2019 11:34

Good point. But I think you have an equal share in it. So rates are divided equally. If someone takes up more space that's bad luck.

Swype on iOS is detrimental to accurate typing. Apologies in advance.

jonathan18

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# 2213574 9-Apr-2019 13:07

Batman: Good point. But I think you have an equal share in it. So rates are divided equally. If someone takes up more space that's bad luck.

As per the post above yours, rates are not simply divided equally as it'll depend on the relative value of each property, plus how the council sets its rates (some may be capital value-based, some land value, others simply per dwelling).

As an example, I've dug out the stats for the previous house we owned and the other house on the cross lease.

Our old property:

Capital Value: $555000

Land Value: $305000

Total Rates: $3373.45

Neighbour's property:

Capital Value: $475000

Land Value: $255000

Total Rates: $3022.34

You'll see there that the land value is quite different between the two properties, despite there each property technically having a 'half share'.

robjg63

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# 2213585 9-Apr-2019 13:16

Batman: Good point. But I think you have an equal share in it. So rates are divided equally. If someone takes up more space that's bad luck.

No rates are not divided equally.

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# 2213587 9-Apr-2019 13:18

2 people support this post

Lol ok I don't know what I'm talking about

Swype on iOS is detrimental to accurate typing. Apologies in advance.

ShiroHagen

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# 2213590 9-Apr-2019 13:24

jonathan18:

As an example, I've dug out the stats for the previous house we owned and the other house on the cross lease.

Our old property:

Capital Value: $555000 Land Value: $305000 Total Rates: $3373.45 Neighbour's property: Capital Value: $475000 Land Value: $255000 Total Rates: $3022.34 You'll see there that the land value is quite different between the two properties, despite there each property technically having a 'half share'.

Out of curiosity - was your house and share of the land larger than the other? 80k / 50k worth bigger? (subjective I admit...)

itxtme

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# 2213639 9-Apr-2019 13:51

Our previous house was 3 units all 1/3 share on the land. We were the back and had the largest space assigned by the Flat Plan which was attached to the property title. Our garden was large, the middle ones was tiny and the front one was about 1 quarter the size of ours.

Our rates: $2473.72
Middle unit: $2451.78
Front unit: $2451.78

So our rates were (are) more expensive, but only modestly

jonathan18

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# 2213640 9-Apr-2019 13:52

ShiroHagen:

jonathan18:

As an example, I've dug out the stats for the previous house we owned and the other house on the cross lease.

Our old property:

Capital Value: $555000 Land Value: $305000 Total Rates: $3373.45 Neighbour's property: Capital Value: $475000 Land Value: $255000 Total Rates: $3022.34 You'll see there that the land value is quite different between the two properties, despite there each property technically having a 'half share'.

Out of curiosity - was your house and share of the land larger than the other? 80k / 50k worth bigger? (subjective I admit...)

Yep, both the house and proportion of the land that we had "exclusive use and enjoyment" (or whatever the correct term is) were larger than the neighbour's; I was going to mention this in the post, as it explains the difference between the values (and rates), but clicked 'reply' before doing so!

I don't have access here at work to the cross lease paper work, but I'm assuming it (or some other document) must provide some quantification of the proportional split of land between the parties, as surely the council needs something official to base its calculations off?

itxtme

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# 2213641 9-Apr-2019 13:54

jonathan18:

I don't have access here at work to the cross lease paper work, but I'm assuming it (or some other document) must provide some quantification of the proportional split of land between the parties, as surely the council needs something official to base its calculations off?

Yes, its called a Flat Plan

jonathan18

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# 2213646 9-Apr-2019 13:59

itxtme:

Our previous house was 3 units all 1/3 share on the land. We were the back and had the largest space assigned by the Flat Plan which was attached to the property title. Our garden was large, the middle ones was tiny and the front one was about 1 quarter the size of ours.

Our rates: $2473.72
Middle unit: $2451.78
Front unit: $2451.78

So our rates were (are) more expensive, but only modestly

Yeah, a difference of $22 is indeed modest! Out of interest, given the substantial differences in exclusive use space between the three properties are there corresponding differences in land value between the three?

You may also need to look in more detail as to how your council sets its rates - it could well be that many of their rates are per dwelling, eg the UAGC (uniform annual general charge) can make up a high proportion of many people's rates, and other rates like rubbish, recycling etc are usually set on the same basis.

ShiroHagen

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# 2213700 9-Apr-2019 14:50

itxtme:

Our previous house was 3 units all 1/3 share on the land. We were the back and had the largest space assigned by the Flat Plan which was attached to the property title. Our garden was large, the middle ones was tiny and the front one was about 1 quarter the size of ours.

Our rates: $2473.72
Middle unit: $2451.78
Front unit: $2451.78

So our rates were (are) more expensive, but only modestly

hmm so it sounds like you were the "winner" in your particular crosslease with larger share of the property to enjoy, but with a more or less equal rates bill to neighbours, and the scenario isn't uncommon.

This is getting interesting, I’ve now looked up the Council rate valuations for both properties, and as expected, the larger section with the larger house has a larger total valuation and rates bill. BUT the Land Valuation component is smaller than the Land Valuation component for the smaller property by 20K! That doesn’t compute when it's 100sqm larger IMHO…

Maybe land size isn't the only factor when it comes to valuation? Does positioning (front vs rear) make a difference? maybe proximity to the road (noise?) or maybe having a shared driveway down the side of the house is seen as a negative?

robjg63

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# 2213718 9-Apr-2019 15:43

Councils in NZ can set rates based on different factors. Auckland bases on Capital Value for example:

https://en.wikipedia.org/wiki/Rates_(tax)#New_Zealand

New Zealand[edit]

In New Zealand, rates have provided the major source of revenue for funding Territorial Authorities of New Zealand expenditure since the late 1800s. Rates are basically a tax on real estate property. For the year ended June 2005, rates made up 56% of local authority operating revenue.[8]

Almost all property owners in New Zealand pay rates and those who do are referred to as ratepayers. People who rent property do not pay rates directly, but property owners will take account of the cost of rates when they set the rent. As a result, those who rent properties also have an interest in the level of rates, as well as in the services provided by councils using these rates.

Some types of property are exempt from rate levies - government land and rail land, for example. Other categories of property may possibly only be rated at 50% (land used for some types of sports purposes). Maori land - particularly where ownership and therefore liability for rates are hard to establish - can also get special treatment. Exceptions are listed in Schedule 1 Part 1 of the Local Government (Rating) Act 2002.[9]

Property values may be assessed in three different ways – on the basis of land, annual or capital value – using valuations prepared in accordance with the Rating Valuations Act 1998. The valuation process is overseen by the Valuer-General. Each local authority, after consulting with their community, can decide which basis to use.[10]

Councils can use a mix of these different methodologies when assessing rates based on the value of holdings, for example land value for its general rate and capital value for a targeted rate.

Councils can also levy flat charges per rating unit (i.e. each lot of land, with some exceptions where multiple adjacent lots may be considered one rating unit if in common ownership, or where multiple dwelling units are on a single lot) - generally called a uniform annual general charge.[11] Other methodologies also exist, such as a charge per toilet bowl or urinal, or a water charge per cubic metre of water supplied.

The Local Government (Rating) Act 2002[12] is the governing legislation and provides a number of options for setting rates, such that local authorities can use combinations of general rates, targeted rates and/or uniform annual general charges.

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sxz

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# 2213719 9-Apr-2019 15:45

ShiroHagen:

According to the rules of Cross lease properties, the owners all have equal share of the freehold title.

Yes, but think of this as the Landlord part of it (lessor). You own a half share as Landlord, but as the Landlord you don't get to use any of it.

ShiroHagen:

So with this train of thought – does it follow that the exclusive areas should also be equal in size?

No - not at all. You will both be equal owners of the underlying freehold title as Landlords, but under the terms of your cross lease you each own a leasehold interest in a specific share of the underlying land (here, you are a tenant or lessee)

ShiroHagen:

So then what happens if unit 1 is 400sqm exclusive area (fenced), and the exclusive area for unit 2 is 300sqm. Does Unit 2 have any legal rights to challenge the internal boundaries?

Not for the reasons you have given, but sometimes. If your Lease gives you an exclusive use area (look on your flats plan on your title, or on your cross lease instrument) then you have exclusive right to that area, no matter whether it is bigger or smaller than 50%. BUT some older cross leases didn't give exclusive use areas, rather, they left all outside area as common area. This means neither one of you are entitled to any exclusive possession (fences or gardens) of any part of the outside area, they can come onto the part you treat as yours, and vice versa.

ShiroHagen:

Similarly, does anyone know how council rate valuations are calculated for cross lease properties? Do Council calculate a land value for the whole title, then split it equally among the number of owners? If so then in the above scenario that would mean one owner is effectively subsidising their neighbours’ larger share of the property with the enjoyment that comes with it!

Anyone seen this before? Or considered before purchasing?

The Council look at the value of the exclusive use area (if there is one). Otherwise they divide it between owners.

Lostja

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# 2213721 9-Apr-2019 15:57

ShiroHagen:

itxtme:

Our previous house was 3 units all 1/3 share on the land. We were the back and had the largest space assigned by the Flat Plan which was attached to the property title. Our garden was large, the middle ones was tiny and the front one was about 1 quarter the size of ours.

Our rates: $2473.72
Middle unit: $2451.78
Front unit: $2451.78

So our rates were (are) more expensive, but only modestly

hmm so it sounds like you were the "winner" in your particular crosslease with larger share of the property to enjoy, but with a more or less equal rates bill to neighbours, and the scenario isn't uncommon.

This is getting interesting, I’ve now looked up the Council rate valuations for both properties, and as expected, the larger section with the larger house has a larger total valuation and rates bill. BUT the Land Valuation component is smaller than the Land Valuation component for the smaller property by 20K! That doesn’t compute when it's 100sqm larger IMHO…

Maybe land size isn't the only factor when it comes to valuation? Does positioning (front vs rear) make a difference? maybe proximity to the road (noise?) or maybe having a shared driveway down the side of the house is seen as a negative?

I would suspect that the slope of the land makes a difference

itxtme

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# 2213730 9-Apr-2019 16:40

In our case

Front
Capital Value: $345000
Land Value: $195000
Total Rates: $2451.78

Middle
Capital Value: $345000
Land Value: $145000
Total Rates: $2451.78

Ours (back)
Capital Value: $350000
Land Value: $245000
Total Rates: $2473.72

Still based on a 1/3 share of the land. It sold for significantly more than its CV, and I would have said the middle one was a very unappealing buy comparatively with just a strip at the back door