Liow v Martelli - [2026] NZCA 101

Property law - Cross-lease - Consent to alterations 

Cross-lease titles are a relatively common form of residential property ownership in New Zealand. Cross-leases commonly provide that no structural alterations can be made (or new structures erected) without the prior consent of the lessors with the proviso that consent is not to be unreasonably withheld. This case concerns the interpretation of that type of clause and in particular whether the dicta in a 1991 High Court decision, Smallfield v Brown, is wrong in law.

The Martelli/Keiths and the Liow/Tans owned neighbouring cross-leased properties. The Martelli/Keiths
proposed to develop their flat but the Liow/Tans' refused to consent. The Martelli/Keiths referred the dispute to arbitration. The arbitrator applied Smallfield v Brown and found the Liow/Tans' withholding of consent was not unreasonable. The case came to Gault J as an appeal on a question of law from the arbitral award, the question being "whether, in the context of cross-leases for residential properties, consent in respect of alterations will be unreasonably withheld . . . only where the benefit to the party seeking change will be substantial and the proposed alteration would produce only trifling detriment to the cross-lessor, as held in Smallfield v Brown". The Judge answered "no" and remitted the case to the arbitrator. The Liow/Tans now appeal to this Court.

The appeal is dismissed. The appellants must pay the respondents one set of costs for a standard appeal on a band A basis with usual disbursements.

Is the Smallfield v Brown test for when consent to alterations will be unreasonably withheld wrong in law? Held: Yes.
The Court approached the interpretation of the alterations covenant from first principles, rejecting the submission that it should be loath to interfere with the Smallfield test. In summary, the Court agreed with the High Court that the test in Smallfield v Brown is wrong in law. The words of the alterations covenant do not contain the constraints that test imposes and nor are those constraints appropriate in light of their context and purpose. The analysis begins by addressing whose consent to alterations is required and in what capacity. In a cross-lease development, the lessors are all of the owners as tenants in common of the estate in fee simple (or other underlying estate). They together grant the cross-leases of each and every flat in the crosslease development to the respective lessees. It is the lessors jointly who must consent or reasonably withhold consent. Most cross-leases have a term of around 999 years. Inevitably, structures will require rebuilding a number of times. In that context, it cannot be right that the intention of the alterations covenant is to preserve structures in the same overall configuration as at the beginning of the cross-lease. The starting point must be that alterations will not only be desired but necessary over the term of the cross-lease. Whether the lessors, acting reasonably, can withhold consent in a particular case is ultimately a question of fact. It can be approached by asking whether a reasonable lessor, having regard to the interests of all the lessees and the context of the cross-lease, could withhold consent. However, without intending to create rigid rules, the Court provided further guidance at [107]-[112].

Should the case be remitted to the arbitrator? Held: Yes.
The arbitrator himself indicated he may well have reached a different result were he not constrained by Smallfield. The whole of the arbitrator's decision was predicated on the Smallfield test and the Court could not be satisfied that, notwithstanding the error in law, the result would be the same.