When consent to cross‑lease changes can be “reasonably” withheld  

The Court of Appeal has clarified the law on when consent to cross-lease alterations can be withheld – and the decision represents a meaningful shift from how the issue has long been approached in practice.

Cross‑leases are a common form of residential tenure in New Zealand. In most arrangements, structural alterations require the consent of all lessors (the owners of all cross-lease flats on the land). However, that consent cannot be “unreasonably withheld”.

For decades, the case of Smallfield v Brown was widely understood to mean that withholding consent would only be unreasonable where the proposed alteration delivered a substantial benefit to the applicant and caused only trifling detriment to the neighbour.

In the recent case of Liow v Martelli, the Court held that Smallfield v Brown does not correctly state the law.

The dispute

The case arose after the Martellis sought consent to significantly enlarge their house, install a swimming pool, and reconfigure outdoor areas. The Liows refused consent, citing concerns about bulk, proximity, privacy, amenity, and value.   They arbitrated under the cross-lease arbitration clause. Applying the Smallfield v Brown approach, the arbitrator found there was substantial benefit to the Martellis, but the detriment to the Liows was not “merely trifling”. On that basis, the refusal of consent was reasonable.   The Martellis successfully challenged the award in the High Court on the basis that Smallfield v Brown was not the correct approach to apply. The High Court agreed and remitted the matter to the arbitrator to reconsider.   The Liows appealed the High Court’s decision to the Court of Appeal, which upheld the High Court’s decision, confirmed that the “trifling detriment” test does not apply, and dismissed the appeal.  

The new approach

The Court said the real question is whether a reasonable lessor, having regard to the interest of all lessees and the context of the cross-lease, could withhold consent. It stated:  

“[It] will boil down to whether a reasonable lessor, having regard to the interests of all the lessees and the context of the cross-lease, could withhold consent. If the answer is yes, the Lessors should not be compelled to consent, notwithstanding that one or more of the persons comprising the Lessors think otherwise. If the answer is no, it follows that the Lessors must consent.” 

  1. That means the assessment is fact‑specific and broader than the historic test. The Court identified a non-exhaustive list of relevant factors. Including: 
  2. Impacts on privacy, sunlight, outlook and other amenities 
  3. Effects on future development potential of neighbouring flats (and any or restricted use or exclusive use areas) 
  4. Whether use or enjoyment of another flat is materially affected 
  5. impacts on the market value  
  6. The reasonable expectations of the lessee seeking to make alterations in order to enjoy their flat. 
  7. Current planning laws  
  8. Changing societal expectations about residential properties use. 
  9. Whether similar enjoyment or utility could be achieved through less intrusive alternatives — for example, a freestanding pool rather than an in-ground pool, or outdoor entertaining without constructing a deck. 
  10. Whether the proposal creates an additional household unit. 

Why this matters

This decision signals a more flexible and nuanced approach to cross-lease disputes.  

Rather than focusing narrowly on whether neighbour impacts are “trifling”, decision-makers must now weigh the interests of all parties in context. That better reflects the realities of ageing housing stock, intensification pressures, and the need for compromise between neighbours. 

In practical terms, it may become harder for neighbours to block alterations simply because they object to them. Demonstrating more than minor detriment will no longer be enough on its own. The question is whether a reasonable lessor, considering all relevant circumstances, could refuse consent. This involves weighing all relevant factors and interests. 

Our view

For owners, developers and advisers, the case is an important reminder that cross-lease disputes are rarely resolved by rigid rules alone. Until a body of case law is established, outcomes will be less predictable than under the longstanding “trifling detriment” test. Parties, their advisers and arbitrators will need to consider the weight to be attached to various relevant factors in the circumstances. Outcomes will increasingly turn on a balancing exercise, proportionality and reasonableness in the round. 

That makes early strategic advice — and where needed, effective dispute resolution — more important than ever.

Other resources you might like

If you found this article helpful and are interested in learning more, there is a wealth of other resources available on our website. We have a wide array of articles and guides on a variety of topics, each designed to provide you with a deeper understanding of the subject matter. We encourage you to explore these resources and deepen your knowledge.

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