Unit Titles

These notes have been prepared to assist clients in understanding the various types of unit titles and their associated problems.

UNIT OWNERSHIP

HISTORICALLY:

The traditional single dwelling is the basis of New Zealand Home Ownership. With the growth of "Own Your Unit's" a number of problems have emerged. These include:-

Subdivision: 1/6th or 1/5th of an acre is about the minimum sized section allowed by local authorities.

Insurance: A fire in one unit will inevitably damage other units in the block. If one Unit is destroyed (to preserve the total property) there should be sufficient insurance money to have the whole property restored (replacement insurance). Preferably one policy should cover the whole block with the cost shared between the Owners.

Exterior Maintenance: Exterior colour schemes should be in harmony and agreed, otherwise the value of each unit is depreciated.

Ongoing Management: Particularly of facilities in a high-rise block - there may be cleaning and elevator maintenance or routine maintenance of grounds (lawns etc) which requires regular supervision and management.

SOLUTIONS:

Three solutions have been developed to meet the problem of separate ownership of units of unsubdivisible allotments :-

(a) Company Method - (now obsolete)

(b) Cross Lease

(c) Strata Title (Unit Titles Act 1972)

(a) Company Method - this method was particularly applicable in Wellington where the high-rise building created problems for surveyors. A company was formed to purchase the land and the buildings erected on the land. Each block of shares carried with it a "licence to occupy" each individual unit. Because such buildings have entrances etc: which require ongoing management, the company structure with its Board of Directors had some advantages. However, disadvantages included:-

Costly Administration - inability to borrow - (as company shares do not offer acceptable security for lenders.)

Company could sell the development (against the wishes of individual owners and/or at a price disadvantage).

Because of the development of strata titles and improved survey techniques the Company method is now obsolete.

(b) Cross Lease - In Auckland where units are often developed one behind the other (like a string of sausages) a hybrid title consisting of two parts is an accepted method. Firstly there is a share of the freehold as landlord (together with the other unit owners). The second part is ownership of a lease (or licence to occupy) of a specified unit and perhaps the exclusive use of the surrounding garden. A similar lease is given to the other unit owners. The lease (or licence to occupy) includes the following provisions :-

(a) a nominal rental of $1.00 per annum

(b) a requirement that the Lessee own also a specified share of the freehold (or the landlord's reversion) - (the share relating to the total number of units).

(c) for a term of 999 years

(d) provisions relating to insurance and exterior maintenance, colour, harmony etc:

This form of title is acceptable security for lending purposes.

(c) Strata Titles - The Unit Titles Act 1972 was passed which combined the best of both company and cross lease methods. The title is a recognised Land Transfer title and is available for security purposes. The rules are registered in the Land Transfer Office (which are similar to the provisions of the Lessee or Licence to Occupy).

Modern survey techniques enable high-rise developments to be surveyed - overcoming problems experienced in earlier years.

The corporate structure is often appropriate. The Act also provides for compulsory replacement insurance unless all owners (and their Mortgagees) unanimously agree to the contrary.

ALTERATIONS AND ADDITIONS:

If the dimensions of the building change - this could require changes to the title documents. This particularly applies if a garage is later added to the property. These changes can involve an expensive re-survey and re-documentation.

ARBITRATION:

Is a usual provision in the documents to resolve disputes between Co-Owners.

STAGED DEVELOPMENTS:

These can cause considerable difficulties if people buy part of a property and build a unit on the land. Problems include cost, delay and difficulties in obtaining release of loan moneys. The costs include a second survey, possibly two sets of mortgage documents (to cover the beginning and completion of the project and a after completion while survey, Council certificates, and title issue procedures are completed. The survey cannot be undertaken until the building is substantially erected. It is only when the title issues from the Land Transfer Office that loan moneys may be available and settlement of a sale resolved.

RECENT DEVELOPMENTS:

1. The foregoing concepts have been extended to industrial and commercial developments.

2. Free Standing Units - often called a "Cluster Development" are now allowed. Previously the units had to be physically joined - even if only by a garage.

3. Adjoining grounds and facilities are often reserved for the exclusive use of the unit owner. This was a development of the mid 1970's. Early cross lease titles do not have the reservation of outside areas.

SECRETARIAL MANAGEMENT SERVICES:

The following are, to our knowledge, available to provide (for a fee) secretarial assistance in the management of a unit development and associated matters - such as insurance and maintenance.

Should you wish to discuss these issues further with us, we would welcome hearing from you.