Between 1958 and 1991, cross-leases became a popular alternative to subdivision. They allowed separate titles to two or more flats on one section to be issued without requiring a subdivision of the land.
Cross-lease titles give each respective registered owner an undivided share in the underlying land, which they own as tenants in common. Each flat or exclusive use area on the property is then leased from the other owners, making each owner a tenant in respect of their individual flat and exclusive use area (if any), and a landlord in respect all flats on the property, including their own flat.
Restrictive covenants in the leases themselves often require an owner who wants to make alterations to their flat to first obtain the consent of all of the landlords (lessors) acting jointly, including the tenant/landlord seeking change.
Often the lease will say that consent to alterations cannot be unreasonably withheld by the lessors, and the 1991 High Court decision in Smallfield v Brown became a guide for Courts and arbitrators in determining when it was unreasonable to withhold consent.
In Smallfield the High Court judge stated that consent will be unreasonably withheld only when the benefit to the party seeking change will be substantial, and the proposed alteration would produce only trifling detriment to the other flat owner(s) (the “Smallfield test”).
In Liow v Martelli, the Court of Appeal revisited the Smallfield test. On 16 April 2026 the Court affirmed the High Court judgment of Gault J and further refined the new test.
The Court noted the usual cross-lease lease term of 999 years, and the inevitable rebuilding of structures during that term, changes in planning laws and building controls, and societal changes in how people live in and use residential properties. The Court considered that it cannot have been intended that structures would remain in the same overall configuration that they were at the time of the grant of the cross-lease for the entirety of the lease term.
The Court found that the correct test is one of reasonableness: whether a reasonable landlord, having regard to the interests of all the tenants and the context of the cross-lease, could withhold consent.
Therefore, a lessor cannot therefore simply refuse consent because the impact on them (as lessee) is more than merely trifling. There are many factors that a reasonable landlord should weigh up as part of this exercise, including (but in no way limited to): having regard to the interests of each tenant, maintaining good relations between all tenants, and recognising that alterations (or even rebuilds) will need to occur over the 999 year term of the lease.
If you are an owner of a cross-lease property who has been approached to consent to a proposed alteration, or you are seeking consent for alterations to your flat, talk to the team at Harmans today on (03) 379 7835 or legal@harmans.co.nz.
