Court of Appeal Clarifies Rules for Cross Lease Alterations

Cross‑lease properties remain a common form of residential ownership in New Zealand. Cross‑leases are also a frequent source of dispute — especially when one owner wants to alter, extend, or rebuild their home.

In Liow v Martelli [2026] NZCA 101, the Court of Appeal has delivered new guidance on cross‑lease alterations. The decision clarifies when consent to alterations may be refused, rejects a long‑applied but restrictive legal “test”, and emphasises the need for cooperation between cross‑lease owners.

This case has important implications for anyone who owns, buys, sells, or plans to renovate a cross‑lease property.

A brief refresher: what is a cross‑lease?

Under a cross‑lease structure all owners jointly own the underlying land as tenants in common and each owner then leases their individual dwelling (often described as a “flat”) from all the owners together, usually for a term of 999 years. Each owner therefore wears two hats:

• as a lessor (together with the other owners), and
• as a lessee of their own flat.

Parts of the land are commonly marked as exclusive occupation or restricted use areas (for example, a courtyard or garden), but these remain owned in common.

Most cross‑leases include covenants restricting structural alterations or new buildings without the prior written consent of the lessors, with consent “not to be unreasonably withheld”. It is that wording — and what “unreasonably withheld” really means — that lay at the heart of Liow v Martelli.

The old approach

For more than 30 years, many decisions (particularly in arbitration) followed an observation made in a 1991 High Court case, Smallfield & Anor v Brown that consent will be unreasonably withheld only where the benefit to the party seeking consent will be substantial and the proposed alteration would produce only trifling detriment to the neighbour.

In practice, this placed the balance heavily in favour of neighbours objecting to change. If a proposed alteration caused more than minor inconvenience consent could usually be refused.

What happened in Liow v Martelli?

Two neighbouring owners shared a cross‑leased site in Remuera. One couple wished to significantly extend their house and add a pool and decking within their exclusive occupation area. Their neighbours refused consent, citing concerns about bulk, proximity to the boundary, changes in use, and property value impacts.

An arbitrator, applying the Smallfield test, held that the refusal was reasonable. The High Court overturned that approach, and the issue ultimately reached the Court of Appeal.

The Court of Appeal dismissed the appeal and rejected Smallfield as a legal test.

The new legal position: a question of overall reasonableness

The Court confirmed that there is no rigid formula for deciding whether consent has been unreasonably withheld. Instead, the correct question is whether a reasonable lessor, acting jointly, and having regard to the interests of all lessees and the context of the cross‑lease,

could refuse consent in the particular circumstances.

Importantly:

• There is no requirement that detriment to neighbours be “only trifling”.
• Equally, owners seeking alterations are not entitled to proceed simply because the benefit to them is substantial.
• Everything depends on context and proportionality.

This flexible approach recognises that cross‑leases last for centuries and change over time is inevitable.

A critical clarification: who actually gives consent?

One of the most important (and often misunderstood) aspects of the decision concerns who must give consent. The Court confirmed that:

• Consent is given by “the Lessors” collectively, not by each owner acting solely in their own interests.
• A single neighbour’s objection does not automatically amount to refusal of consent.
• Where the owners cannot agree, the cross‑lease’s decision‑making and arbitration clause must be used to arrive at a joint position.

This reinforces that decision‑making under a cross‑lease is not a veto system. Owners must engage with each other in their shared role as lessors of the whole property.

Practical guidance from the Court

While avoiding strict rules, the Court offered practical guidance on how reasonableness should usually be assessed. A reasonable lessor will typically:

• Consider the interests of all owners, not just their own.
• Disregard collateral or personal grievances.
• Aim for even‑handedness and proportionality.
• Recognise that being a cross‑lease owner requires “give and take”.
• Expect owners proposing works to avoid unnecessary detriment and adjust plans where reasonable.
• Expect objecting owners to engage constructively with proposals.

Relevant factors may include privacy, light, views, impacts on value, future development potential, planning rules, neighbourhood norms, and realistic alternatives.

What this means for cross‑lease owners

Renovations may be more achievable

Neighbours can no longer rely on the argument that any more than minor impact justifies refusal. Ordinary and reasonable improvements — even if they cause some detriment — may need to be accepted.

Objections must be grounded and proportionate

Refusals based on fear, inflexibility, or personal opposition are at greater risk of being found unreasonable.

Process matters

Owners seeking consent should make a clear proposal, engage early, use the cross‑lease decision‑making process if unanimity cannot be reached.

Objecting owners should clearly articulate specific concerns, engage in good faith, and be open to design changes and compromise.

Disputes are still fact‑specific

The decision does not create a green light for unlimited development. Each case still turns on its own facts.

Liow v Martelli marks a significant reset in how cross‑lease alteration disputes are assessed. The decision reflects the realities of an ageing housing stock and the need for sensible modernisation, while still protecting neighbourly interests.

For owners, it reinforces an enduring truth about cross‑leases: they require cooperation. When cooperation fails, courts and arbitrators will now look more closely at whether parties have acted reasonably — not rigidly.

If you own, are buying, or are planning work on a cross‑lease property, early legal advice can help manage risk, avoid costly disputes, and ensure the correct process is followed.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.