by Nadia Herlambang

1. Introduction

A defective title means there’s a legal issue with the property’s title that prevents it from being transferred to the new owner. This usually occurs when someone has a legal claim or interest noted on the title, for example, an encumbrance, that needs to be resolved before the sale can go ahead. Other reasons for a defective title are when there is a faulty description of the property e.g. an outdated cross-lease plan.

If you are purchasing a property, you want it to be free of defects. Title issues can delay your settlements, reduce a property’s value or make the property unmortgageable.  

2. Common Types of Defective Titles

Common types of defective titles to lookout for and check your lawyer has flagged include:  

Cross-lease defects

A cross-lease title means you own an undivided share of the land with the other owners, while holding a long-term lease (often 999 years) for the specific home (flat) you occupy. This structure gives each owner exclusive rights for their own dwelling and to the defined areas of land allocated to them.

A common defect in a cross-lease title is work completed not in accordance with the flat plan – a plan of the footprint of the property.  For example, a garage has been added without updating the title plan or obtaining consent from the council –this means the title is defective.

Boundary encroachments

A boundary encroachment occurs when a garage, deck or fence you’ve added extends over the legal boundaries of your property. This defect in title may cause complications when selling a property, as this encroachment is technically a trespass. An encroachment may be remedied by moving the structure, if possible, purchasing the encroached land off your neighbour or entering into a formal encroachment licence or compensation agreement.

Incorrect easements

Occasionally, an easement may be incorrectly registered against the wrong land area or title. When this occurs, the intended access rights aren’t legally secured, meaning the owner will not receive the benefit of the easement as intended.

Wrongly registered instruments

Although uncommon, significant issues can come from an instrument like a mortgage, registered against the incorrect title. The incorrect registration means the incorrect party will benefit or be burdened by the instrument.

3. Why These Issues Matter

Issues to a property’s title can affect lending for buyers. Lenders may decline loan requests or require costly corrections to the title if it is defective.

Correcting a defective title is a pricey and lengthy process, especially for a cross-lease property. The property must be resurveyed and registered with Land Information New Zealand (LINZ) if an alteration or additions isn’t on the flat plans. Further, you and your neighbour will need to sign legal documents to amend the title and acquire your bank’s consent if there are mortgages on the title. These changes can reach $15,000 to $20,000 and take around three months to complete.  

Settlement can be greatly delayed or even fail when there’s a defective title.

4. How to Detect a Defective Title

Avoid a delay or failure to settle by engaging a lawyer before entering into an unconditional agreement.

NZ Legal can do a legal review of the record of title, survey plans and council files to flag a defective title. This involves comparing the physical property to the legal title and ensuring there’s no title defect.

The sooner you obtain legal advice, the faster you can be confident bidding on a property at auction.

5. Contract Clauses and Buyer Protections

In standard ADLS Sale and Purchase Agreements (“SPA”) there is a title requisition clause, clause 6.2, which gives buyers a right to cancel the SPA.

Buyers can only make a requisition if the title is defective in some way or the defect makes the title materially different from the title the vendor claimed.

For example, there are errors in the easement instrument which mean that the property burdened or benefitting from the easement like a right of way is incorrect. An example of a materially different title includes a new or undisclosed consent notice that restricts future building designs e.g. the buyer’s future renovations.  

Buyers cannot make a requisition on issues of:

• Conveyance: discharge of mortgage,
• Quality: physical aspects of the land or buildings, like structural damage, or
• Contract: breaches of vendor’s warranties, failures to satisfy conditions etc.

The ADLS SPA generally contains a 10-working day requisition period, where the buyer can raise a requisition to the title and require the vendor’s lawyer to fix the issue before settlement. The vendor has 5-working days from receiving the requisition notice to inform if they’ll fix it or not.

The Fair Trading Act (“FTA”) holds consumer protections that also covers property purchases. Sellers should notmake false or misleading representations regarding the land. This includes regarding the price payable, land’s location, characteristics of the land etc.

6. NZ Legal’s Approach

It is crucial to get a lawyer to check a property’s title and SPA before committing to unconditionally purchase a property.

At NZ Legal, we provide a fixed fee for due diligence and pre-purchase advice, including checking for defective titles.

Contact the NZ Legal team today to ensure there are no defective titles involved in your property purchase.

Frequently Asked Questions (FAQs)

1. What exactly is a defective title?

‍A defective title means something on the property’s legal title isn’t 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.

2. Why should I care if a property has a defective title?

‍Defective titles can delay settlement, reduce the value of the property, or make it harder to get a home loan. In serious cases, you may not be able to settle at all.

3. How do I know if a property has a title problem?

‍You won’t know just 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.

4. What is a cross-lease defect?

‍This happens when the house or garage does not match the official flat plan on the title. For example, if a deck or room has been added but the cross-lease plan hasn’t been updated, the title becomes defective.

5. What happens if part of the house or fence crosses over the boundary?

‍This is a boundary encroachment. It may be fixed by moving the structure, buying the small strip of land, or signing a formal agreement with the neighbour. Until fixed, it is technically a trespass.

6. Will my bank lend on a property with a defective title?

‍Often, no. Banks may decline lending or require the issue to be corrected first. This can add thousands of dollars in survey and legal costs and take weeks to resolve.

7. Can I cancel the contract if the title is defective?

‍Yes. The standard ADLS sale and purchase agreement gives buyers the right to raise a “requisition” and require the seller to fix the defect. If the seller refuses, you may be able to cancel. Your lawyer will guide you through this.

8. Can I use the title requisition clause for any issue with the property?

‍No. You can only requisition legal title issues — not physical problems like leaks, damage, or building quality. Those fall under different clauses in the agreement.

9. 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, especially as neighbours, banks, and LINZ all need to sign off.

10. 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.