A defective title means there is a legal problem with the property’s title that must be resolved before ownership can safely transfer. It is not a physical issue with the building — it is a legal issue recorded (or missing) on the formal title document held by Land Information New Zealand (LINZ).
If you are purchasing a property, you need it to be free of title defects. Defective titles can delay your settlement, reduce the property’s value, make it impossible to get a home loan, or — in the worst case — cause a sale to fall through entirely.
What Makes a Title “Defective”?
A property title in New Zealand records who owns the land, what legal interests exist over it (mortgages, easements, covenants, caveats), and the legal description of the land’s boundaries and structure. A title is defective when something on that record is wrong, missing, or inconsistent with the physical reality of the property.
Defects can arise in several ways:
- An instrument (such as a mortgage or easement) is registered against the wrong title.
- The property’s physical structure no longer matches the title’s registered plans — common with older cross-lease properties where alterations were made without updating the documentation.
- A legal interest that should have been removed (such as a discharged mortgage) still shows on the title.
- A neighbour’s fence, garage, or deck physically crosses the legal boundary.
Common Types of Defective Title in New Zealand
Cross-Lease Defects
A cross-lease title means you own an undivided share of the entire land with the other owners on the property, while holding a long-term lease (often 999 years) for the specific home (called a “flat”) you occupy. The flat plan — a drawing of the footprint of your dwelling — is a registered document that defines the shape and dimensions of what you lease.
A common defect arises when improvements are made to the dwelling without updating the flat plan. For example:
- A garage is added but the title plan still shows the original footprint.
- A deck is enclosed to create a room but the plan has not been amended.
- A new carport is built that falls outside the area shown on the flat plan.
In each case, the physical structure no longer matches the legal document. This makes the title defective, even if the council approved the work, and even if the improvement was completed decades ago.
Why this matters to buyers: A cross-lease defect is not just a paperwork problem. Banks will often refuse to lend against a property with a defective cross-lease title. Fixing it requires a new survey, updated cross-lease documentation, consent from all other lessees, consent from any mortgagees, and registration with LINZ. The process typically costs $15,000–$20,000 and takes around three months.
Boundary Encroachments
A boundary encroachment occurs when a structure — typically a garage, deck, retaining wall, or fence — physically extends beyond the legal boundary of the property. The structure is technically trespassing on a neighbouring lot.
This is more common than many buyers expect, particularly on older properties where boundaries were surveyed less precisely, or where extensions were built by eye rather than by survey.
An encroachment can be remedied by:
- Relocating the structure (if practical),
- Purchasing the encroached strip of land from the neighbour, or
- Entering into a formal encroachment licence or compensation agreement.
Until the encroachment is resolved, it is a legal defect that can complicate any future sale and may affect lending.
Incorrect Easements
An easement is a legal right to use another person’s land for a specific purpose — for example, a right of way allowing access across a neighbouring property to reach your own.
Occasionally, an easement is incorrectly registered — against the wrong title, in the wrong direction, or with an inaccurate description of the land it affects. When this happens:
- The intended access or other right is not legally secured.
- The owner may not receive the benefit they expected, or
- A neighbouring owner may be incorrectly burdened by an obligation that was never intended to apply to their land.
Correcting an incorrectly registered easement requires legal documentation and re-registration at LINZ, which takes time and cost.
Wrongly Registered Instruments
While uncommon, a significant defect can arise when an instrument — such as a mortgage, caveat, or consent notice — is registered against the wrong title. This can happen through administrative error at LINZ or by a law firm during the registration process.
The consequences can be serious: the wrong party may appear to hold a financial interest over a property, or a title may appear encumbered when it should be clear. These errors need to be corrected before settlement can proceed.
Defective titles don’t advertise themselves. You cannot see a cross-lease defect by walking through a property — only a review of the title, flat plan, and council records will reveal it.
Why Title Defects Matter to Buyers
Lending Risk
Lenders — banks and non-bank lenders alike — rely on the property as security for the loan. If the title is defective, the security is compromised. Most lenders will:
- Decline to lend until the defect is resolved, or
- Require the defect to be corrected before settlement, which may not be achievable in time.
This is a serious practical risk for buyers who have already committed to a purchase.
Settlement Risk
If a title defect is discovered close to settlement and the vendor cannot or will not fix it, settlement may be delayed or — in serious cases — may not proceed at all. The costs, stress, and legal consequences of a failed settlement can be substantial.
Value Risk
Even if you manage to purchase a property with a known title defect, you will own that defect and carry the cost of fixing it. Remediation costs reduce the true value of what you have bought.
How to Detect a Defective Title
You cannot identify a title defect by inspecting the property. Detection requires a legal review comparing:
- The Record of Title (the formal LINZ document showing ownership, legal description, and registered interests),
- The survey plans (confirming legal boundaries),
- The flat plan (for cross-lease titles — confirming the registered footprint matches the actual structure), and
- Council records (building consents, code compliance certificates, and council LIM report confirming consented work).
NZ Legal carries out this review as part of our fixed-fee pre-purchase due diligence service. The earlier you engage a lawyer, the sooner you can proceed with confidence — including bidding at auction.
Your Legal Rights: The Title Requisition Clause
The standard ADLS/REINZ Sale and Purchase Agreement (SPA) contains clause 6.2, which gives buyers a right to raise a title requisition — a formal notice requiring the vendor to fix a title defect before settlement.
What You Can Requisition
You can raise a requisition when:
- The title is defective in some way, or
- The defect makes the title materially different from the title the vendor represented it to be.
Examples of valid requisition grounds:
- An error in an easement instrument that means the wrong property is burdened or benefited,
- A new or undisclosed consent notice that restricts future building designs,
- A wrongly registered instrument still appearing on title.
What You Cannot Requisition
The title requisition clause does not cover:
| Can Requisition (Title Issues) | Cannot Requisition | |
|---|---|---|
| Easement errors | Yes — wrong land described in the easement instrument | No — easement access is inconvenient but legally correct |
| Wrongly registered instruments | Yes — mortgage registered against the wrong title | No — mortgage on the correct title even if disputed |
| Physical defects | No — structural damage, leaks, rot | No — quality issues are a separate warranty matter |
| Contract issues | No — vendor's failure to satisfy conditions | No — breach of warranty (separate clause) |
| Conveyancing issues | No — mortgage discharge delay | No — administrative timing issues |
The Requisition Timetable
The ADLS SPA provides a 10-working-day requisition period after the agreement is signed. Within that window:
- The buyer (through their lawyer) raises any title requisitions in writing.
- The vendor has 5 working days to advise whether they will fix the issue.
- If the vendor declines, the buyer may be entitled to cancel the agreement.
Fair Trading Act Protections
The Fair Trading Act 1986 also applies to property sales. Vendors must not make false or misleading representations about the land — including its price, location, boundaries, or characteristics. If a vendor misrepresents the title, buyers may have additional remedies beyond the SPA.
How to Protect Yourself: An Action Checklist
Before committing to purchase
0/0 completeWhat Happens If You Discover a Defect After You Are Unconditional?
If you have already gone unconditional and then discover a title defect, your options are more limited. You are generally bound to the agreement. Your lawyer will need to assess:
- Whether the defect gives rise to a requisition under clause 6.2 of the SPA,
- Whether the vendor’s representations amount to a misrepresentation,
- Whether the defect is serious enough to justify cancellation, or
- Whether you can negotiate a price reduction or a delay in settlement to allow remediation.
This is why pre-purchase legal advice is essential. Once unconditional, your protection is largely gone.
Frequently Asked Questions
What exactly is a defective title? A defective title means something on the property’s legal title is not right — for example, an outdated plan, the wrong document registered, or a neighbour’s structure crossing the boundary. These issues need to be fixed before ownership can safely transfer.
How do I know if a property has a title problem? You cannot tell by looking at the house. A lawyer needs to compare the title, plans, and council records with what actually exists on the land to confirm everything matches.
What is a cross-lease defect? This happens when the house or garage does not match the official flat plan on the title. If a deck or room has been added but the cross-lease plan has not been updated, the title is defective.
Will my bank lend on a property with a defective title? Often not. Banks may decline lending or require the issue to be corrected first. Correction can add thousands of dollars in survey and legal costs and take weeks to resolve.
Can I cancel the contract if the title is defective? Possibly. The standard ADLS SPA gives buyers the right to raise a requisition and require the vendor to fix the defect. If the vendor refuses, you may be able to cancel. Your lawyer will advise you on the specific circumstances.
How long does it take to fix a defective title? It depends on the issue. Updating a cross-lease plan can cost $15,000–$20,000 and take around three months, as neighbours, banks, and LINZ all need to be involved.
When should I ask a lawyer to check the title? Before bidding at auction and before you go unconditional. Early legal advice is the best way to avoid buying a property with expensive hidden problems.
This article provides general information about defective titles and property law under New Zealand law as at November 2025. It is not legal advice. Speak to a lawyer about your specific situation.
Sources
- Land Transfer Act 2017Governs the registration of title interests and transfers in New Zealand.
- Property Law Act 2007Covers easements, covenants, and property rights between neighbouring landowners.
- Fair Trading Act 1986Prohibits false or misleading representations in property sales.
- ADLS/REINZ Agreement for Sale and Purchase of Real EstateStandard form Sale and Purchase Agreement used in most NZ residential transactions.
Was this article useful?
Thanks for the feedback. It helps us improve.
