Supreme Court confirms arbitrator should reconsider cross lease matter

• The applicants did not unreasonably withhold consent 
• The proposed alterations would substantially benefit the respondents 
• The adverse impacts on the applicants appeared not to be trifling 

High Court decision

On the respondents’ appeal, Justice Gault of the High Court remitted the matter to the arbitrator. 

According to the judge, the arbitrator erred in considering himself bound to the “only trifling detriment” test in Smallfield v Brown (1991) 2 NZ ConvC 191,110 (HC) when determining whether the lessors unreasonably withheld consent. 

Court of Appeal ruling

On the applicants’ appeal, the Court of Appeal affirmed the High Court’s interpretation of the cross-lease clause and doubted the intent in Smallfield to articulate a definitive test, which was materially incorrect in any case. 

The appeal court decided that: 

• This case considered the factual question of whether a reasonable lessor, upon considering all lessees’ interests in the cross-lease context, could have withheld consent 
• All lessors should collectively give consent 
• A factor to weigh – when considering whether lessors acting jointly reasonably withheld consent – was the reasonableness of a lessor withholding consent due to their interests as a lessee 

Supreme Court denies leave to appeal

The applicants applied for leave to appeal. They alleged that: 

• The Smallfield approach has applied to New Zealand cross leases for over three decades 
• Hearing the proposed appeal – which involved a matter of general or public importance and of general commercial significance because such cross leases covered over 200,000 properties in the country – would serve the interests of justice 

The respondents objected to the leave application.

Ultimately, the Supreme Court declined leave to appeal and ordered the applicants to pay the respondents $4,850 in costs. 

Supreme Court’s reasoning

The Supreme Court acknowledged that: 

• The question of whether to apply the so-called “Smallfield gloss” to rule on whether the lessor unreasonably withheld consent under the standard terms raised a question of general commercial significance and public importance, given the prevalence of New Zealand cross leases 
• The question of whether the Court of Appeal correctly determined that it should consider the reasonableness of consent from the perspective of the lessors collectively raised an issue of wider importance 

However, the Supreme Court held that the applicants lacked an adequately arguable case and prospects of success to justify granting leave. 

The Supreme Court rejected the applicants’ argument that remittal was inappropriate because the arbitrator deemed the effect on the appellants’ property value more than trifling and found that the owner of a cross-leased property did not need to consent to structural alterations with such an impact. 

The Supreme Court explained that the appeal court listed relevant factors for the reasonableness assessment – which would depend on the circumstances and which would likely evolve over time – to give guidance, not to set rigid rules. 

Supreme Court’s previous property cases

Here are some other recent decisions by the Supreme Court of New Zealand involving property matters. 

Upon interpreting a relationship property agreement in an estate proceeding, the Supreme Court issued a 4 September 2026 decision that did not find a surviving de facto partner entitled to an additional share of the principal estate asset under the Administration Act 1969. 

In a case among siblings revolving around property their parents had passed down, the Supreme Court made an 8 May 2026 decision denying a stay application upon determining that the Court of Appeal of New Zealand had applied settled principles to a stay application before that court. 

On 28 April 2026, the Supreme Court denied an application for leave to appeal against a Court of Appeal decision that overturned a High Court of New Zealand ruling upholding a community garden manager’s application to sustain a caveat against the title of Crown-purchased land. 

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