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Getting Cross About The Cross-Lease

Getting Cross About The Cross-Lease

Upset over development plans can be addressed, but it pays to follow the correct procedure.

By: NZ PROPERTY INVESTOR

29 December 2023

Q. We have a neighbour who shares a cross-lease with us and three others in Auckland. The neighbour is putting an 8x4 metre unit on the back of their property, which will overlook ours and severely impact our privacy. It is openly opposed by us and the others on the cross-lease. Is there anything we can do to stop the building going ahead? All the materials are on site and the builder is apparently due to start.

A. The answer to the question will depend on the wording of your cross-lease, which vary. Most cross-lease agreements prohibit lessees from undertaking alterations or additions without the other lessees’ consent. This is usually with the proviso that consent cannot be unreasonably withheld. In deciding whether refusal is unreasonable, judges will normally weigh the detrimental effect on the other lessees against your neighbour’s benefit.

Detriment can include matters such as loss of amenity, peace or privacy from being overlooked, which you say applies here. For example, in one case installation of French doors and deck was said to create “a strong sense of visual intrusion” making it reasonable to refuse consent. Your options may vary depending on where the proposed unit is placed on the property ie, on common property or on the neighbour’s exclusive use area.

We recommend checking the flat plan and cross-lease agreement carefully. If you decide construction would be in breach of the cross-lease agreement, then this may be grounds to seek an injunction from a court ordering your neighbour to stop work and/or undo any work carried out. If you want to prevent construction work being carried out prior to the case being heard, you will need to give the court an undertaking as to damages. This is a promise that if the court ultimately decides against you, you will reimburse your neighbour for loss suffered because of the injunction. 

In making any interim order to stop work, the court will look at a range of factors including how strong your case as to breach is and how best to preserve the status quo. As a court application will involve legal costs, if time allows we recommend writing to your neighbour first, telling them that construction would be in breach of the cross-lease and that all other lessees object. 

You could warn them that if they continue, they risk a court ordering removal of the unit at their own cost, in addition to an order to contribute towards your court costs. It would also be worth noting in the letter that construction could result in a defect in your neighbour’s title and issues when their property is sold, depending on the nature of the unit.

– Shane Campbell

Q. My mum and I bought our first home in March last year. The interest rate was fixed for two years at 5.99 per cent. My mum died in September and her will has my siblings written into the house. What is the likelihood of the mortgage being rewritten under all of our names and the interest rate being changed?

A. If you want to change the ownership then you will almost certainly lose the interest rate. Do note that if you do decide to go down the path of adding your siblings on that there can be other negative implications to be aware of. If they haven’t purchased a property previously this may impact their ability to access KiwiSaver later for a home for themselves. Also note that lenders will look at the full debt as being applied to each person individually if anyone applies for a mortgage in the future. What I mean by this is let’s say there were four of you so you each own 25 per cent of the house and believe you are responsible for 25 per cent of the mortgage. The banks will load 100 per cent of the mortgage onto any applicant who applies for other mortgages elsewhere, which can restrict what they may want to do individually.

– Kris Pedersen

Q. We have a property that will need work when the tenant leaves, in the next couple of years. We are saving for this work but as the savings are profit, we are subject to tax. Is there any way of buying vouchers or getting store credits for items we will need for the renovation at a later day, so it is not counted as profit?

A. I would have several concerns over this. Firstly, if you wait until a tenant departs before undertaking maintenance that ultimately leads to you selling the property rather than re-letting it, the works lose their nexus with the income earning activity which is the renting. This then means the works are considered capital works designed to achieve the capital gain on sale and are non-tax deductible, even if they would have been deductible if re-let.

My second concern would be that buying vouchers without actually taking the goods or beginning the work leaves you as an unsecured creditor of the merchant. In the event the business collapsed you would almost certainly have lost your money. Lastly, the point at which a deduction for the maintenance cost (assuming the property is re-let) is triggered is when the work the voucher will pay for is undertaken and the voucher redeemed, not the point in time where the voucher itself is acquired.

My suggestion overall would be to budget for the works needed and pay for them when the work is undertaken, ideally prior to the property becoming unlet and certainly before the property is marketed for sale.

– Mark Withers


Q. My tenant has expressed interest in adding a portable pool for the summer, but I’m feeling a bit concerned about potential issues. Are there any specific rules and regulations I should be aware of, and would it be advisable to proceed with caution in this situation?

A.Considering the tenant’s addition of a portable pool is a decision that involves careful consideration of legal and safety aspects. Section 42B (Minor Changes) of the RTA is pivotal here. Firstly, evaluate whether the pool presents a risk of material damage to the premises. For instance, placing it on grass may risk damage to the lawn. Additionally, assess potential health and safety risks, especially if there are young children in or around the property. As the PCBU (person conducting a business or undertaking), conducting a thorough risk assessment aligns with your obligations under the Health and Safety Act.

Moreover, portable or above-ground pools with specific characteristics may require regulatory consent, such as a building consent for a compliant fence. If the pool’s height is less than 1.2 metres above ground or it’s in proximity to permanent structures like decks, fencing may be mandatory.

– Ryan Weir

Q. I have been renting out my property investment in the long-term rental market since it was purchased six years ago. This year I would like to explore short-term renting. What will this switch mean in terms of the Residential Tenancies Act and protecting my property?

A.When you list your property in the short-term rental market, things such as the Residential Tenancies Act and Healthy Homes regulations are not applicable. This means any standard rental agreements seen in long-term renting do not apply to your property or the guests who stay there. With that said, online travel agents (OTA) such as Airbnb will have legally binding terms and conditions that cover aspects such as payments, cancellations and damages. On Airbnb, all hosts are offered AirCover free. This insurance agreement includes up to US$3 million for host damage protection costs and a further US$1 million for host liability insurance.

Regardless of a booking platform’s terms and conditions, hosts are also entitled to draft their own rental agreement. This can include rules surrounding deposits and refunds, the maximum number of guests staying on the property, liability for accidents, and things such as bringing a pet onto the property. If you decide to include a short-term rental agreement with your listing, you need to ensure guests are aware of its existence and the terms prior to booking, not on checking in.

While OTAs usually have identity verification rules in place for guests, to best protect your asset we recommend joining a professional property management company that can implement more thorough processes for screening guests, including background checks and social media vetting. Joining a team of professionals can also offer your guests 24/7 support and ensure rules surrounding parties and noise are upheld or dealt with as soon as an issue arises.

– Eric Hammond

Q. I have a rental property and I need to know if I have to pay tax or not. I have not made any profit from rent yet. And what about if I don’t pay tax and don’t claim expenses?

A. When you say you have not made a profit from the rent yet, the “$64 million question” here is: How have you calculated your profit? Unfortunately, tax is not so simple as just looking at what the cash flow position is. Some expenses that you might expect to be deductible, are not deductible. Interest is the prime example of this if the property was bought on or after March 27, 2021, and it is not a new build or rented as social housing.

In summary, whether you make a profit or not from a tax point of view, you need to file a tax return. Therefore, I suggest you engage an accountant to help you with this, and they will be able to determine if there is a profit or loss for tax purposes.

– Matthew Gilligan

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