Cross-leases, renovations and neighbour disputes — a shift in approach

Although an increasingly dated concept, cross-lease titles are common in New Zealand. Many owners understand the basic idea: they share ownership of the property with their neighbours and lease their own area back for a nominal amount (often less than a dollar a year and only payable if demanded).

However, this shared ownership creates obligations: neighbours have a say over an owner’s renovations amounting to structural alterations, and a neighbour’s input on those works can be unwelcome. Disputes are common when neighbours withhold consent to an owner’s renovations.

For many years, cases like Smallfield v Brown (HC Auckland CP1254 90, 26 August 1991) favoured an objecting neighbour in such disputes. They permitted neighbours to withhold consent unless the renovating owner gained a substantial benefit while the neighbour would suffer only trifling detriment. In practice, objecting neighbours could often thwart an owner’s planned renovations.

What is the position of the courts now?

That position has now changed. In Martelli v Liow [2024] NZHC 968, the High Court rejected the Smallfield test in favour of individual property rights. The High Court held that the objector’s decision had to fall within the realm of actions open to a reasonable neighbour before they could withhold consent. “More than merely trifling” would no longer cut it and a neighbour must point to some genuine disadvantage before they can object.

The Liow parties appealed to the Court of Appeal. In its recent decision Liow v Martelli [2026] NZCA 101, the Court of Appeal upheld the High Court’s reasoning. One must first identify the objecting cross-lessor’s actual concerns; and then determine whether a reasonable cross-lessor could object to renovations on those concerns.

Why does this decision matter?

The decisions shift the law in favour of individual property rights:

• As the courts noted, cross-leases are creatures of their time: they arose as a result of planning constraints over the last century which made subdivision difficult. These leases were a creative solution to that problem.
• It can be tempting to see leases between property owners as a purely commercial arrangement. However, there are key differences: the term of a cross-lease is typically so long as to be indefinite; while the rent each owner pays to the other is tokenistic. Both features reflect the true understanding underpinning the cross-lease: each cross-lessee owns their own home. Consistent with that ownership, each owner should be entitled to upgrade and renovate their property without capricious interference from their neighbour.
• Reform of the cross-lease system is not a novel idea: the courts referred to 1999 commentary from the Law Commission recommending the phasing out of cross-leases; and a 2017 Auckland Council report which warned against the difficulty of redeveloping ageing cross-lease properties due to the complicated nature of their ownership.

Of course, a reasonable neighbour may still object where proposed works create negative effects on privacy, light, views, amenity, market value and future development potential. Equally, the courts now expect practical co-operation. Renovators should engage early and pragmatically with their neighbours to avoid disputes. Objecting neighbours should respond constructively rather than refusing consent outright.

What do owners need to be alert to?

As with any legal dispute, there is an inherent risk that disagreement can evolve into costly, protracted litigation. For many owners, the better long-term option may be to work with their neighbours to convert a cross-lease into separate freehold titles where practicable. This can reduce the risk of disputes and clarify the parameters for ongoing development. Unshackled from the constraints of a cross-lease, a subdivision may also increase the value of individual titles (we suggest you seek separate valuation advice on this point before proceeding).

If you are considering objecting to a neighbour’s renovations, or if a neighbour has objected to your proposed work, you should get advice early to ensure you are best-placed to proceed.

Wynn Williams can assist owners to bring or defend cross-lease disputes and explore subdivision options. Speak with one of our team to get the tailored advice that is right for you.