Home Buyer: property ownership

ou’ll want to understand what they mean and what the pros and cons of each are. You might even decide that having a certain type is non-negotiable for you, so it’s best to understand this before you start house hunting.

If you’re buying the property with someone else, then you’ll also need to decide how you want to structure the ownership.

Fee simple (freehold)

Most properties in New Zealand are held by owners with fee simple titles. Fee simple is a type of freehold property ownership, but these terms are often used interchangeably. Fee simple is the most common and highest form of private land ownership. This means the title is free of any other claims and you can sell or pass the property to whoever you want. It also means you’re not tied to anyone else’s interest in the property, so you’re free to mortgage it and make changes to the land and buildings, provided they’re permitted by law i.e. meets local planning requirements and the Resource Management Act 1991. It’s important to note that while your property may be fee simple (freehold) there can still be restrictions to its use in the form of covenants and easements – your lawyer can review the title to see if there is anything you need to be aware of.

Leasehold

This is where you own the building and any improvements on the site, but you have to purchase the right to occupy (lease or rent) the land from the land owner. The lease will be for a set period of time and you’ll pay a ground rent to the land owner as part of your right to occupy under the agreement.  So while the lease may be affordable at the time of purchase, there will be rent review periods where the ground rent is periodically assessed in line with current property market values. This means that if the value of the freehold land increases there’s a risk that the ground rent could also increase significantly. It’s for this reason that leasehold properties can become more difficult to sell if they’re nearing the end of their lease or approaching a review period.

With leasehold properties you also need to be aware that there can often be restrictions to your use of the land and all outgoings like council rates, body corporate fees, insurance and maintenance may be your responsibility. So if you’re thinking about purchasing a leasehold property it’s important you talk to your lawyer before making an offer and ensure you thoroughly understand all the terms and costs involved with having a lease.

Cross-lease

A cross-lease is where two or more people own the same piece of freehold land, with more than one dwelling on the property, and then lease the use of these from each other. Historically, cross-leases were a common way of subdividing land so you’re more likely to see this type of ownership in older properties that have two or more homes, as well as single-level blocks of flats.

A cross-lease creates two layers of rights – the right of ownership and the right of use. The underlying fee simple (freehold) title is owned jointly by the owners of each property within the cross-lease. These owners, as a group, then lease parts of the land back to each other. The leases create the rights of exclusive use for each property, and the rights to common areas. In most situations, you’ll need to get the permission of all the other owners before making alterations to your home or adding new buildings. So if you’re thinking about purchasing a property that has a cross-lease title, it’s important that you discuss the terms of the lease with your lawyer and ask them to explain all the elements to you.

Unit title (Stratum Estate or Strata Title)

This title ownership type is when there is a group of properties held on one piece of land  involving  shared facilities (common property) i.e. a shared drive way, gym facilities, lifts and swimming pools.  With a unit title, you own a defined part of the building, such as an apartment and a car park, and share ownership in the common property. Unit titles can involve either fee simple or leasehold developments. This means that within a fee simple development, each property is allocated a share of the underlying piece of land that the development is built on, and with a leasehold development a ground rent will need to be paid to the landowner.

As an owner of a unit title property you’ll automatically become part of the body corporate which will manage the common property and decide the rules that will govern its use. Owners will usually pay an annual body corporate fee to cover day-to-day expenses like maintenance, administration, insurance, ground rent (if leasehold) and other utility costs associated with the property. You should also be mindful that there can be special one-off costs charged to owners if the annual fee doesn’t cover all costs. This could range from a small cost with a share of a lift repair to something more significant like a share of the cost of weather tightening the building.   

Given the complex nature of unit titles it is advised that you should seek advice from a lawyer to help you understand your rights, restrictions and responsibilities.

When buying a property it is important to consider the type of ownership that is appropriate for your particular situation. A property can be bought in either sole ownership or co-ownership. 

Sole ownership

Sole ownership is where one person solely owns the property.

Co-ownership

Co-ownership is when you’re purchasing a property with others, such as a partner, family members or friends. Under co-ownership there are two different ways you can choose to structure your ownership.

1. Tenants in common

Tenants in common own a share of the property which can be of equal or different sizes. For example co-owners might choose to split their ownership equally, giving each a 50% share. Or perhaps split it differently, maybe 30% and 70%, to reflect their contribution to the purchase. The amount of a person’s interest in the property will be recorded on the certificate of title.

Under tenants in common any co-owner can:

• Transfer or mortgage their share of the property without the knowledge of the other owner/s
• Pass their share of the property, under their will, to any other person of their choosing, whether that’s the other owner or someone different.

With tenants in common co-ownership it’s important to talk to your lawyer about having a will in place to clearly outline who you want your property share to pass to.

2. Joint tenants

Joint tenants own a property equally, meaning neither person owns a defined share. This is typically the structure chosen by de facto and married couples and no separate shares are reflected on the property title.

Under joint tenants:

• Co-owners cannot mortgage their interest in the property without the agreement of the other owner/s

• Upon the death of a co-owner the other owner/s automatically become entitled to all of the property, regardless of any provisions the deceased may have made in their will.

When deciding how to structure your property co-ownership it’s very important that you discuss it with your lawyer – they’ll be able to talk through all your options in more detail and help you work out what option will suit your situation best.

If you’ve got any queries about this information, it’s a good idea to get in touch with a lawyer.

The above information is a guide only and should not be relied upon as it does not take into account your personal and financial situation.