Mortgage Trends Know What You’re Buying: Understanding the Different Ownership Types

Know What You’re Buying: Understanding the Different Ownership Types

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In New Zealand, we have four main forms of land ownership; freehold, leasehold, unit title and cross lease. If you are looking at buying a new home, it is important you understand what ownership form you will be buying, how it limits future options and how it impacts potential capital gains.

Before committing to buying a house, it is important you know exactly what you are getting into. Below we outline the key aspects of each ownership type and how it could affect you.

Freehold

Freehold, the most common type of ownership in New Zealand and by far the most highly sought after. Also known as ‘fee simple’, this form of ownership grants you exclusive ownership over the land and anything built on that land.

The only restriction on your exclusive ownership will be if there are any prior interests formally outlined. These interests may include, conditions under the Resource Management Act 1991, easements that grant another party, such as neighbours or utility providers, to access parts of the land or airspace, agreements that limit what the land can be used for or Maori freehold land.

For most Kiwi’s, the ideal outcome is to purchase freehold property, as it gives them the greatest freedom and the best earning potential if they decide to sell.

Leasehold

If you enter into a leasehold agreement, you will be purchasing the exclusive rights to the land in question, however, you will not be the sole owner. Instead, you will be leasing the land and the buildings upon that land for a predetermined length of time.

There are several things you need to consider if you are looking at entering into a leasehold agreement. Firstly, you will be required to pay rent to the freehold owner. This amount will be clearly outlined in your Sale and Purchase Agreement. However, this amount is subject to review at the discretion of the owner.

Secondly, as a result of not owning the land, you will not be able to benefit from any capital gain that is generated from any future sale of the land.

Lastly, if you decide to sell your leasehold agreement before the end of its term, it may be fairly hard depending on the amount of rent you pay and the amount of time left on the agreement.

While leasehold agreements are not as popular as freehold, it can be a fairly affordable way to get your foot on the property ladder, particularly for first-time buyers.  

Unit title

When you decide to buy a unit, apartment or a townhouse, it will be under a unit title. As part of this title, you will have exclusive ownership of your particular unit and shared ownership of all common spaces.

Owning an apartment, automatically makes you a member of the building/ spaces body corporate. They are responsible for the day-to-day running of the space as well as carrying out regular maintenance.

Before committing to purchasing a unit title, you should ask the seller or agent to clearly explain the conditions associated with living in the space and being a member of the body corporate. This should include, the annual fee that you are required to pay the body corporate, for your share of the maintenance, minutes from previous body corporate meetings and what the body corporate manages (e.g. rubbish and cleaning of communal areas).

In today’s current climate, with apartments becoming increasingly viable and affordable, for most first-time buyers this is a good first step. But, there are a few major differences that come with owning a unit title compared to owning/ leasing land, so do your homework on the building you’re interested in.

Cross lease

Lastly, cross leases, are when you own an equal share of the freehold title with several other parties on a piece of land. While you are the sole owner of your house, you are a partner in the land.

Because you share the land, if you want to make any changes to your property, you are legally required to seek approval from the other cross leaseholders. So, if you are looking at slapping a new coat of paint on or whipping up a deck, you must get majority approval.

Before committing to purchasing a cross lease, make sure you receive up to date plans that show the exact land distribution and floor plan you are intending to buy.

If you are unsure the differences between the four major title types, make sure you get in touch with us today. Our team will be able to walk you through the specifics of each title and how it may affect you.

Get in touch today.



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