They can impact what owners can and cannot do with their properties
Property ownership in New Zealand comes in different forms, with each entailing a different set of rights and restrictions – and understanding the benefits and drawbacks of each type is crucial in helping home buyers make informed purchasing decisions.
This brief guide explains the four most common land ownership types in New Zealand and how they can affect what owners can and cannot do with the property.
Purchasing a freehold property, also referred to as fee simple, gives buyers absolute ownership of the land and anything built on the land. It is also the most common type of property ownership in New Zealand. Having a freehold title gives owners a certain level of freedom when it comes to renovating their properties. This means they do not need their neighbour’s approval when upgrading or extending their homes, although council permission may be required for major modifications.
But there are also other factors that may have an impact on property ownership. These include easements that grant other property owners and utility service providers access to the land, be it as right of way or to connect services, and covenants that may restrict what type of structures can built. There are also restrictions under the Resource Management Act of 1991, which prevents any person from using land in a way that “contravenes a national environmental standard, regional rule or district rule.” Some limitations likewise apply if the land is considered as Māori freehold land.
2. Unit title
Also known as strata title, stratum estate, or stratum in freehold, unit title ownership is common in multi-unit developments such as apartment buildings and townhouses. This grants home buyers sole ownership of their units and shared ownership of common areas, including driveways, lifts, and lobbies.
Property owners also automatically become members of the body corporate, a group that comprises all the unit owners within a unit titled property. The body corporate holds ownership of the land for the benefit of the unit title holders, which is the reason why unit owners do not need to pay ground rent or a lease fee for the land. However, they are required to pay an annual fee or levy to cover for the management and maintenance of common areas, as well as building insurance.
Buyers of properties with a leasehold title are granted ownership of the house but not the land that it sits on. This means they need to pay annual rent, also called ground rent or a lease fee, to the person who owns the land, also referred to as the freeholder.
Leasehold property owners are given the exclusive right to live on the land and the structures on it for a specific period, which can last years, decades, or even centuries, depending on the terms of the lease.
The leaseholder-freeholder contract sets out the rights and obligations of both parties, including how much the ground rent is, what can be built or renovated, who is responsible for specific repairs and maintenance, and rules on pets, noise levels, and use of the property.
Although leasehold properties generally have a lower purchase price, ground rents are reviewed at set periods and can increase substantially depending on how much the value of the land has risen.
4. Cross lease
Cross leases are common when there are multiple dwellings on a single piece of land. In this set up, homeowners share ownership of the land, and each party leases their properties from all owners. A cross lease title generally comes with a flats plan, which contains the outline of an owner’s building. Any changes to a flats plan or building often requires the consent of the other owners and a new survey plan, making renovations an even costlier endeavour. For driveways and other common areas, repairs and maintenance are typically a shared responsibility.