New 'reasonable lessor' standard replaces Smallfield's trifling detriment threshold
New Zealand's Court of Appeal overturned a 35-year-old test for when cross-lease neighbours could withhold consent to structural alterations.
In Liow v Martelli [2026] NZCA 101, decided on 16 April 2026, the court upheld the High Court's rejection of the Smallfield v Brown (1991) test. That test held that consent could only be unreasonably withheld where the benefit to the party seeking change was substantial and the proposed alteration produced only trifling detriment to the neighbour. The court found the Smallfield test wrong in law.
The respondents, Brett Martelli and Susannah Keith, owned flat 1 at 80 Waiatarua Road, Remuera. The appellants, Sue Liow and Sai Tan, purchased flat 2 at 80A Waiatarua Road in 2017. Both properties sat on the same cross-leased fee simple title.
The Martelli/Keiths sought to expand their 114.5 m² house by 54 m² to 169 m², bringing it to 1.4 m from the boundary with flat 2, down from over 6 m. They also proposed adding a 27.2 m² in-ground swimming pool 1 m from the boundary, 28.8 m² of new decking to connect the house to the pool, and the removal of their separate garage in order to avoid taking what might be regarded as the Liow/Tans' site coverage.
The Liow/Tans refused consent. An arbitrator, applying the Smallfield test, found that refusal was not unreasonable.
The court confirmed that consent under a cross-lease alterations covenant required agreement from the Lessors jointly. The Lessors comprised all owners of the underlying estate as tenants in common, including the lessee seeking the alterations.
The court replaced the Smallfield test with a flexible, fact-based reasonableness inquiry. The central question was whether a reasonable lessor, having regard to the interests of all lessees and the context of the cross-lease, could withhold consent.
The court outlined factors a reasonable lessor could weigh, including the degree of physical intrusion into other lessees' privacy and amenities, the impact on the possibility of future development of another lessee's flat, the impact on the market value of the other lessees' flats, the current planning laws applicable to the area, and changes in societal expectations around residential property use.
The court also emphasised that, given cross-leases typically ran for around 999 years, alterations would not only be desired but necessary over the life of the lease. It found it untenable to suggest that lessees could not take advantage of changes in architectural and building practices to change and optimise residential dwellings.
Cross-lease titles accounted for approximately 18 percent of all residential property titles in Auckland as of March 2016. The court noted that redevelopment pressures arising from ageing housing stock presented a looming problem.
The court dismissed the appeal, confirming the High Court's decision to remit the arbitral award to the arbitrator for further consideration in light of the new legal framework. It ordered the appellants to pay the respondents one set of costs for a standard appeal on a band A basis with usual disbursements.
