Can a cross-lease neighbour still veto your renovation?

Not the way they could a year ago. In Liow v Martelli [2026] NZCA 101, the Court of Appeal threw out the 35-year-old test that let a single objecting neighbour block a cross-lease alteration almost automatically. The question now is whether a reasonable lessor, weighing everyone’s interests, could withhold consent — not whether the objector can point to any detriment at all.

Why cross-leases keep ending up in dispute

A cross-lease sits in an uncomfortable middle ground between full freehold ownership and shared land. You own your dwelling and have exclusive use of a defined area, but the land itself is jointly owned — which means structural changes, even inside your own exclusive-use area, often need consent from your neighbours. For years, that consent requirement has been a flashpoint, not usually because a proposal was unreasonable, but because the legal test for refusing it was poorly understood.

The case: Liow v Martelli

Two neighbouring owners on a cross-leased site in Remuera were at the centre of it. One couple proposed a fairly typical upgrade — extending their home and adding a swimming pool and decking within their exclusive-use area, bringing the building closer to the boundary. Their neighbours objected, citing bulk, proximity, loss of amenity and potential effects on property value. An arbitrator applied the long-standing test from Smallfield v Brown (1991) and upheld the refusal. The Court of Appeal overturned it.

The old test let a single objection stand almost automatically. The new one asks whether a reasonable lessor, weighing everyone’s interests, could actually justify saying no.

The end of the Smallfield test

Under Smallfield v Brown, consent could only be unreasonably withheld if the benefit to the applicant was substantial and the detriment to the neighbour was trifling — a test that, in practice, handed objecting owners something close to an automatic veto. The Court of Appeal replaced it with a two-stage, fact-based inquiry: first identify the lessors’ actual concerns, then ask whether a reasonable lessor, properly considering the interests of all parties and the context of the cross-lease, could be entitled to withhold consent on those grounds. There’s no formula and no requirement to prove the effect on a neighbour is merely trifling — the focus is reasonableness and proportionality, not a mathematical test.

35years the Smallfield v Brown test had stood before being overturned
2026NZCA 101, decided 16 April 2026
2stages to the new reasonableness test

Consent isn’t a personal veto

One of the most important, and most often misunderstood, parts of the decision is who actually gives consent. The Court confirmed that all fee simple owners act jointly as lessors — consent is a collective decision, not something any one owner can grant or refuse purely in their own interest. A single neighbour saying no doesn’t automatically amount to a lawful refusal. If owners can’t agree, the cross-lease document’s own dispute resolution process, typically arbitration, has to be used rather than either side asserting a personal veto.

What “reasonable” looks like now

Rather than a rigid formula, the Court pointed to a “give and take, live and let live” standard: considering the interests of all owners rather than just your own, setting aside unrelated grievances or long-running personality conflicts, and accepting that shared ownership involves compromise and that properties have to be able to evolve over time. Relevant factors can include privacy and physical intrusion, effects on another owner’s own future development potential, impacts on market value, current planning controls, and modern expectations around residential living — the kind of assessment property consultants, architects and project managers already make routinely when advising on feasibility.

Cross-leases often run for 999 years, and the Court’s reasoning explicitly recognises what anyone working in subdivision or redevelopment already understands: it’s unrealistic to freeze a building in the form it had decades ago. Ageing housing stock and intensification pressure make alterations inevitable, not optional, and the law now allows for that evolution while still protecting legitimate neighbour interests.

What this means in practice

Proposing an alteration? Engage early and transparently, present a clear, well-designed proposal, and use the cross-lease’s own dispute process if consensus can’t be reached informally.

Objecting to a neighbour’s proposal? Be clear, principled and proportionate. Some impact on you doesn’t automatically make a proposal unreasonable, and engaging constructively puts you in a far stronger position than a reflexive refusal.

Advising on a cross-lease property? Address consent early in any feasibility assessment. The exposure here is manageable, but only if it’s properly understood before a proposal is drawn up, not after a neighbour has already objected.