Court of Appeal overturns long-standing test for consent to alterations on cross-lease titles

Overview

Cross-leases remain a common form of residential title in New Zealand, covering an estimated 216,000 properties, of which around 100,000 are in Auckland. The typical alterations covenant requiring the consent of the cross-lessor to structural external alterations, and the condition that consent is not to be unreasonably withheld, has resulted in decades of disputes between neighbours, which were almost always resolved by reference to the test in Smallfield v Brown (1991) 2 NZ ConvC 191,110, which set a high bar for the party seeking to make alteration. Fisher J held that consent would 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 neighbour. 

In practice, this meant that anything beyond a trifling detriment was sufficient to justify refusal, regardless of how significant the benefit to the party seeking change. The decision in Liow v Martelli [2026] NZCA 101 has now displaced that test.

Background

The appellants sought the consent of their rear neighbours to a single-storey extension to their dwelling, an in-ground pool, and connecting decking. The neighbours refused consent. The matter went to arbitration under the cross-lease.
The arbitrator considered himself bound by the test in Smallfield. Applying the substantial benefit / trifling detriment formulation, he found in favour of the objecting neighbours, noting that had the test placed the fulcrum in the middle of the competing interests, he would have decided the other way.
On appeal, the High Court held that Smallfield imposed an unjustified gloss on the contractual requirement of reasonableness and remitted the matter to the arbitrator. The objecting neighbours then appealed to the Court of Appeal.

The Court of Appeal decision

Delivering the judgment of the Court, Thomas J stated that the Court doubted that Fisher J had ever intended his words to be adopted as a definitive test of reasonableness. The “substantial benefit” and “only trifling detriment” language did not appear in the alterations covenant itself, and elevating it to a rule of law produced an inappropriate rigidity.

In its place, the Court of Appeal held that whether consent has been unreasonably withheld is a fact-specific assessment, judged by reference to what a reasonable cross-lessor would do, having regard to a broad range of considerations. Those considerations include, but are not limited to:

• the nature, scale, and visual impact of the proposed alteration on the objecting neighbour;
• the benefit to the party seeking consent, without it needing to be characterised as substantial;
• what is normal or to be expected for the locality, including comparable alterations in the immediate area;
• the parties’ prior dealings, including any earlier alterations made without objection. The Court endorsed a “live and let live” approach between reasonable neighbours; and
• the terms of the particular cross-lease, which remain the starting point in every case.

Importantly, the Court rejected the proposition that the assessment must be weighted in favour of the objecting neighbour. The fulcrum is balanced. A cross-lessor who refuses on grounds that are exaggerated, idiosyncratic, or unrelated to the matters protected by the covenant risks being found to have withheld consent unreasonably and having costs awarded against them.

Practical implications

Practitioners advising vendors, purchasers, and existing cross-lease owners on proposed renovations, including extensions, pools, decks, or remediation works, will need to reassess their advice and guidance, both as to the prospects of obtaining consent, and as to the likely outcome if a refusal is referred to arbitration.

Acting for the cross-lessee seeking consent

Detailed plans, elevations, and visualisations should accompany any request for consent. Practitioners should anticipate the concerns a reasonable neighbour might raise, such as light, outlook, privacy, location, and noise during construction, and address them in the request. Demonstrating that the proposal is consistent with typical practices in the locality will carry weight under the new approach.

Acting for the cross-lessor considering a refusal

An objection based solely on aesthetic preference is unlikely to be considered reasonable. Reasons for refusal should be tied to identifiable detriment and be proportionate. Where the cross-lease provides for an arbitration pathway, the client should be advised that the arbitrator will now apply a balanced reasonableness inquiry rather than the previous trifling-detriment threshold.

Pre-purchase due diligence

The alterations covenant for a cross-lease title should be reviewed. Purchasers planning future works should be made aware that while consent is readily obtainable for reasonable alterations, it is not automatic.

Prior refusals, existing disputes, and pending arbitrations

Matters currently before arbitrators, or refusals issued in reliance on Smallfield, may need to be revisited. Where consent was withheld on a trifling-detriment basis and proceedings have not concluded, parties should consider whether the refusal can be sustained under the new test.

By Lawyers publication updates

Commentary on cross-lease consent to alterations in the By Lawyers Sale of Real Property and Purchase of Real Property guides has been reviewed and updated to reflect the decision in Liow v Martelli. Two new precedent letters have also been added:

• Letter to other side’s solicitor requesting consent of cross-lessor to alterations
• Letter to other side’s solicitor advising cross-lessor refuses consent to alterations

New AI prompts added to the Criminal guide

By Lawyers has expanded its library of practical AI prompts across Estate Administration, Trusts, Conveyancing & Property, Criminal, Sale and Purchase of Business, Partnerships and Companies.

Developed and tested by experienced lawyers, these prompts are designed to help practitioners complete common drafting, reviewing and advisory tasks more efficiently while supporting consistent, best-practice workflows.

Latest prompts

The latest additions have been added to the By Lawyers Criminal and Traffic Offences publication including:

Prompt for brief to Counsel in a criminal matter

This prompt prepares a summary of the prosecution case, including the charges laid, the available evidence, the matters requiring advice from Counsel and further instructions. 

Prompt for letter instructing psychiatrist or psychologist

The psychologist or psychiatrist instruction letter prompt sets out the defendant’s background and identifies the matters requiring expert opinion.

Prompt for submissions in support of a bail application in the District Court and Prompt for submissions on sentencing in the District Court

These 2 prompts assist practitioners to organise the relevant facts, identify the applicable legal principles, and outline the defendant’s personal circumstances, rehabilitation, and mitigating factors. The prompts generate draft submissions in support of bail, dismissal of charges or proposed sentencing orders, with or without conditions, and direct the AI to consider relevant legislative provisions where appropriate.

Other AI prompts available in By Lawyers

By Lawyers legal guides include prompts to: 

• compare client instructions with draft documents, such as trust deeds, leases, loan agreements, partnership agreements, shareholders agreements, and agreements for the sale and purchase of a business;
• prepare letters of advice to clients on discretionary trust deeds, partnership agreements, shareholders agreements, commercial and rural leases, and agreements for the sale and purchase of a business;
• summarise estate assets and liabilities for Probate and Letters of Administration matters;
• prepare statements of assets, liabilities and distribution in estate administration matters;
• draft correspondence to executors outlining estate assets, responsibilities and the next steps in administering an estate;
• prepare briefs to counsel, letters of instruction to psychiatrists or psychologists, bail submissions, and sentencing submissions in criminal matters; and
• produce concise summaries of loan terms in mortgage matters.

The addition of AI prompts to the practical resources available throughout the By Lawyers matter plans, enable firms to work more efficiently, reduce drafting time, and maintain consistency across matters. As with all By Lawyers content, the prompts are integrated into the relevant publications alongside practical commentary and precedents, making them available exactly when practitioners need them.

By Lawyers AI prompts are developed for use with LEAP's Matter AI and have not been tested or validated with any other software or AI platforms.

AI use policy updated

The AI use policy within the By Lawyers Practice Management Guide has been updated to help firms strengthen compliance frameworks.

This AI use policy reflects the rapidly evolving professional environment in which courts, regulators, and professional bodies are clarifying the requirements for use of AI in law firms to be done responsibly and for outputs to be verified. 

AI use in law firms

Across New Zealand a growing number of practice notes, and guidance materials have reinforced courts’ consistent expectations that:

• AI is a tool, not an authority;
• Legal practitioners remain fully responsible for all material they file or rely on in court; and
• Outputs generated by AI must be checked for accuracy, relevance, and authority.

In short, the professional obligation not to mislead the court remains as binding as it ever was, despite the ease with which it can now be neglected.

The Pinsent Masons case

This reflects recent international developments, including the widely reported matter of Anthony Malcolm Cork & Anor v Mark Smith [2026] EWHC 1199 (Ch), involving the UK law firm Pinsent Masons.

In that case, AI-generated material was relied upon without adequate verification, with erroneous material repeatedly submitted to the court. The detailed forensic examination that Judge Mullen conducted provides both an exemplar of the risks of using AI in legal practice and the way to avoid them: namely to verify AI output against authentic sources, every time. 

The enhanced By Lawyers AI use policy is drafted with the Pinsent Masons case in mind. It includes the requirement to record all AI use and the method of verification.

Utility of an AI use policy

The updated By Lawyers AI use policy brings these expectations together in a clear, practical format for day-to-day use in practice.

In practical terms, it allows firms to align their use of AI with a clear compliance structure, reducing uncertainty, improving supervision, and lowering risk exposure.

Integration with practice tools: LEAP Matter AI

The enhanced By Lawyers AI use policy is designed to be readily adopted by firms using integrated AI tools such as LEAP Matter AI.

For LEAP users, this means:

• The By Lawyers AI use policy can be embedded as the firm’s governing framework for AI-assisted drafting within matters;
• It provides a consistent baseline for staff training and supervision across all workflows; 
• It supports firms in applying a single, documented standard of AI verification; and
• It helps ensure that AI-generated material within LEAP Matter AI is subject to the same professional checks required for any other source of legal content.

Publication updates

The updated policy is now available in the Staff Handbook in By Lawyers Practice Management guide to help firms align with current court expectations and emerging regulatory thinking, while also drawing on real-world lessons for the profession globally.

Having an AI use policy is a must for any firm, to make its AI use safer, more disciplined, and ultimately more defensible.

Altered test for Disputes over Consent to Alterations on Cross-lease Titles

The recent case of Liow v Martelli [2026] NZCA 101 determined that Disputes over a cross-lessor’s refusal of consent to alterations are governed by a fact-specific reasonableness inquiry. That position is materially different from the long-standing test that applied under Smallfield v Brown (1991) 2 NZ ConvC 191,110, which was weighted in favour of the objecting neighbour.

The current test

The test that now applies is as stated by Thomas J in Liow v Martelli. The question of whether consent has been unreasonably withheld is a fact-specific assessment, judged by reference to what a reasonable lessor in the position of the cross-lessor would do, having regard to a broad range of considerations. Those considerations include, but are not limited to:

• the nature, scale, and visual impact of the proposed alteration on the objecting neighbour;
• the benefit to the party seeking consent, without it needing to be characterised as substantial;
• what is normal or to be expected for the locality, including comparable alterations in the immediate area;
• the parties’ prior dealings, including any earlier alterations made without objection. The Court endorsed a “live and let live” approach between reasonable neighbours; and
• the terms of the particular cross-lease, which remain the starting point in every case.

The assessment is not weighted in favour of the objecting neighbour. The fulcrum sits in the middle of the competing interests of the parties. A cross-lessor who refuses on grounds that are exaggerated, idiosyncratic, or unrelated to the matters protected by the covenant is at real risk of being found to have withheld consent unreasonably and having costs awarded against them.

Practical implications

Acting for the cross-lessee seeking consent

Detailed plans, elevations, and visualisations need to accompany any request for consent. Practitioners should anticipate the concerns a reasonable neighbour might raise, including light, outlook, privacy, location, and noise during construction, and address them in the request. The request should demonstrate that the proposal is consistent with what is typical for the locality.

Acting for the cross-lessor considering a refusal

An objection based solely on aesthetic preference is unlikely to be considered reasonable. Reasons for refusal should be tied to identifiable detriment and be proportionate. Where the cross-lease provides for an arbitration pathway, the arbitrator will apply a balanced reasonableness inquiry.

Pre-purchase due diligence

The alterations covenant for a cross-lease title needs to be reviewed. Purchasers planning future works need to be made aware that, while consent is readily obtainable for reasonable alterations, it is not automatic.

Prior refusals

Refusals issued in reliance on Smallfield may be able to be reassessed. Where consent was withheld on a trifling-detriment basis, the party seeking consent can consider whether the changed legal position justifies a reassessment of the matter.

AML/CTF Amendments

Changes to the AML/CFT regime introduced by the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2026 apply from 19 May 2026.

The amending Act is intended to improve the effectiveness, efficiency, and consistency of the anti-money laundering regulatory regime for the benefit of Kiwi businesses.

The changes include:

• amended definitions of beneficial owner, trust and company service provider, and money or value transfer service;
• a new definition of stored value instrument for the purpose of the prohibitions on transactions above the applicable threshold value and cross-border transport and reporting; it means a portable device other than a debit or credit card that represents or contains monetary value but is not physical currency, and can be redeemed for cash – for example, casino chips, vouchers, gold, and diamonds – and such items are now caught by the same prohibitions, cross-border transport restrictions, and reporting obligations as cash;
• a change from the term ‘customer’ to ‘person’ regarding the requirements for standard, simplified, and enhanced customer due diligence, to clarify that the obligations extend to new enquiries, not just existing clients;
• removal of low risk trusts from the automatic obligation to conduct enhanced customer due diligence regarding verification of identity requirements; and
• a requirement for the AML/CFT compliance officer to be, or report to, a senior manager of the reporting entity.

The commentary on AML/CFT, and the relevant AML/CFT policies, in the By Lawyers Practice Management publication have been updated to reflect these changes.

New Offence and Sentencing Changes for Stalking and Harassment

Changes effective 26 May 2026 under the Crimes Legislation (Stalking and Harassment) Amendment Act 2025 include a new standalone criminal offence for stalking and harassment, punishable by up to 5 years’ imprisonment.

The scope of prohibited conduct is expanded to include repeated unwanted contact, monitoring, technology-facilitated abuse, and online harassment. The definition under new s 216P of the Crimes Act 1961 of specified acts that can constitute the new offence is reflected in corresponding amendments to the definition of psychological abuse under s 11 of the Family Violence Act 2018.

The amending Act also amends the Sentencing Act 2002 to introduce new aggravating factors for offending involving persistent stalking behaviour or breaches of restraining orders.

Courts also have new powers to impose restraining orders and harmful digital communications orders even where an offender is discharged without conviction.

The By Lawyers District Court Criminal and Family Violence publications have been updated accordingly.

AML/CFT changes

One of the many ways By Lawyers adds value for our subscribers is by tracking bills that are before the parliament and making sure we update our publications when new or amending Acts commence. It’s a chore that most busy law firms struggle to keep on top of; quite rightly, they tend to be more focused on servicing their clients’ immediate needs rather than keeping an eye on what the government proposes in future legislation.

For example, keeping up with all the proposed changes to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regime is currently a full-time job. Fortunately, By Lawyers is watching developments closely and will update our publications, including the coverage of AML/CFT in our Practice Management guide, as soon as each change commences.

Some recent AML/CFT reforms have already commenced. See our previous News & Updates post, and the By Lawyers Practice Management publication for assistance, and consider using the LEAP AML Compliance App.

Coming AML/CFT changes – status of the 2 pending Bills

There are currently 2 separate Bills before the New Zealand Parliament that impact the AML/CFT regime:

1. Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill (114 of 2024)

This bill makes 26 technical amendments, including changes to Customer Due Diligence for low-risk trusts, refined definitions of beneficial ownership, and small changes to reporting obligations.

Following the Select Committee stage, amendments were agreed, and the bill was read for a 3^rd time. It now awaits royal Assent and commences the next day

2. Anti-Money Laundering and Countering Financing of Terrorism (Supervisor, Levy, and Other Matters) Amendment Bill (181 of 2025)

This Bill reshapes the AML/CFT system, making the Department of Internal Affairs the single supervisor, introducing an industry levy, and expanding rule-making powers.

Following the Select Committee stage, amendments were agreed, and the bill was read for a 3^rd time. It now awaits royal Assent and commences on 1 July 2026.

What this means for law firms

Expect technical reforms and a new supervision and levy framework to commence during 2026.

Firms can rely on By Lawyers to keep them up to dat

Leave applications in the family Court for parties subject to litigation abuse orders

New Family Court rules have introduced a procedure for leave applications by parties who are subject to litigation abuse orders that prevent them from taking steps in an existing proceeding or commencing new proceedings without a judicial leave.

The Family Court Amendment Rules 2026 insert a new r 220A into the Family Court Rules 2002 with effect from 26 March 2026 to support s 12B of the Family Court Act 1980, which was inserted by s 5 of the Victims of Family Violence (Strengthening Legal Protections) Legislation Act 2025.

Section 12B allows orders to be made, on a judge’s own initiative or on an interlocutory application, restricting a party from commencing, or taking further steps in, proceedings without leave where they have engaged in litigation abuse against another party. See our previous News & Updates post and our Family Law guides for more details about those orders.

The new r 220A, and other related amendments to the rules, provide that an application by a party who is subject to a s 12B order must:

• be made on notice;
• identify what the applicant proposes to do; 
• identify the proceedings, if proceedings are already on foot;
• be accompanied by written submissions not exceeding 10 pages setting out why leave should be granted; and
• where the proposed step requires documents to be filed, be accompanied by those documents and any other documents they intend to file.

A new r  228A provides the procedure for the court’s consideration and determination of applications under r 220A. They are referred to a judge in chambers who may:

• make any orders considered appropriate;
• direct that the application be treated as made on notice and require service on the other parties; or
• dismiss the application.

If the application is dismissed, the judge can, despite the usual requirement under r 206(1), direct that the order dismissing it need not be served on other parties to the proceedings.

The By Lawyers Family Law guides for Parenting, Family Violence, and Relationship Property Division have been updated accordingly.

Significant changes to the Employment Relations Act 2000

The Employment Relations Amendment Act 2026 commenced on 21 February 2026, introducing several significant changes to the Employment Relations Act 2000.

Unjustifiable dismissal threshold

Employees whose base salary exceeds $200,000 are no longer able to bring an unjustifiable dismissal claim unless their employment agreement permits it. The threshold amount is indexed annually pursuant to a statutory formula.

Gateway test for contractors 

The definition of employee in s 6 of the Employment Relations Act 2000 has been amended to introduce a legislative test to determine whether a worker is an employee or an independent contractor. The test is based on factors such as the existence of a written agreement, the ability to subcontract the work, control over hours of work, and whether the worker is free to work for others.

Restrictions on personal grievance remedies

If an employee has engaged in serious misconduct such as fraud or harassment, and their behaviour contributed to the grievance, certain personal grievance remedies are now unavailable to them.

Removal of the 30-day rule

The rule that new employees must be employed on the terms of any collective agreement for their first 30 days, regardless of union membership, has been abolished. Employers must now inform new employees of any collective agreement and of their right to join the union and be bound by it. If the employee chooses to remain subject to an individual agreement, a 90-day trial period may apply from the first day of employment.

Publication updates

The By Lawyers Employment Law guide has been updated in line with these changes and to assist practitioners in applying the new provisions in practice.