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Cross lease property – What you need to know
Gary is looking to buy a new home and comes across a great townhouse in central Christchurch that ticks all the boxes. Like any careful buyer, he sends us the details to check out before he commits to signing up.
The property Gary loves is one of three townhouses on cross lease titles. We let Gary know that a cross lease is a different beast when it comes to the ownership structure of his townhouse. There will be two parts to his cross lease title. Firstly, he will co-own the land and improvements with the other cross lease owners, and secondly, he will lease back his townhouse and the garden around it for his own use. We’ve highlighted important points he needs to consider:
- Gary will lease his townhouse and the land with it from his co-owners. This means that Gary’s house will be subject to lease conditions and limitations. These could include a requirement to keep the house insured, how he may use his property and even the types of pets he can own.
- Gary will share the cost of repairs and maintenance with the other owners – these being items that are outlined in the lease.
- If he wants to make any alterations to his townhouse, Gary will need the other owners to agree (it pays to be on good terms with your neighbours).
- Gary will need to keep his improvements on the property within the boundaries of the flat plan. If he adds another room onto his townhouse and it no longer fits on the flat plan footprint, it can be a costly exercise to remedy.
- Importantly for Christchurch properties, Gary’s lease has a condition that he has to make good any damage to his flat and that he must keep it insured. This can cause problems when it comes to selling earthquake damaged properties or pocketing the insurance pay out without using it to fix up the dwelling.
It is sensible for a legal advisor to have a good look into the title of any property you are buying, especially so, when thinking about a cross leased property to make sure you don’t find yourself in any sticky situations down the track.
Buying or selling a property? Then you should know about the bright-line test
Have you bought and sold a property after 1 October 2015? Are you planning on doing so in the future? If so, you need to know about the Bright-line Test for Residential Land Act 2015.
In a nutshell the Bright-line Test requires income tax to be paid from any gains from residential property purchased then sold within a two year period.
Think you can get around it? Think again.
The Bright-line Test sits alongside other new measures that require buyers and sellers of property to front up with tax statements recording their IRD number. As a result of information sharing between the Register of Lands and the IRD – the IRD will have access to transactional information enabling them to check whether tax has been paid on the sale.
What if there aren’t any gains?
Of course, not all property transactions lead to gains. However, losses from tax sales under the new Bright-line Test will be ring fenced meaning they’ll be off set only against gains on other land sales conducted by you.
Are there exceptions to the rule?
There sure are. The two year rule does not apply to all property sales. Excluded, amongst others, are:
- Your main home (itself the subject of a complex definition);
- Inherited property; and
- Transfers of property in a relationship settlement.
There’s a bit more to the Bright-line Test than you may think and there’s a lot of misinformation out there. If you plan to purchase or sell property, now or in the future, it’s a good idea to talk through your personal situation with your advisor. They can help you unpick the detail and make sure you work through your tax obligations correctly.
If you have any queries in respect of the above, or any other Lifelaw issues, please contact a member of our team:
In this edition:
- Cross lease property – what you need to know ››
- Buying or selling a property? Then you should know about the bright-line test ››
- Lifelaw team ››
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