Cross-lease owners warned Court of Appeal ruling may curb veto power

The dispute between Sue Lynn Liow and Sai Hoe Tan against Brett Martelli and Susannah Keith went to arbitration, then the High Court at Auckland.

Liow and Tan refused to agree to a proposal from Martelli and Keith to:

Increase the existing 114.5sq m front weatherboard house by 54sq m to 169sq m;Bring that house closer to the boundary by 1.4m rather than more than 6m away, as it is now;Build an in-ground pool of 27.2sq m, 1m from the boundary;Add new decking of 28.8sq m to connect the house to the pool;Remove the separate garage for site coverage.

The High Court upheld the front neighbours’ right to alter their backyard via the development.

Unhappy with that, Liow and Tan, with a house at the back of the site, went to the Appeal Court to try to have the decision overturned.

But they also lost there.

The Remuera property where the court ruled in a dispute over a cross-lease. Photo / Joanna Pidgeon

“This could also end more than three decades of frustration with this common cross-lease problem,” said Pidgeon, who is a property and business law specialist.

Justices Mallon, Thomas and Whata ruled in the case.

The owners of the front house wanted to change their exclusive backyard, the decision noted.

That was to become a focus for socialising with the pool and deck, which would be much closer to the smaller brick flat behind.

Owners of the flat behind withheld consent.

Joanna Pidgeon of Pidgeon Law. Photo / supplied

Originally, there had been an arbitration where the arbitrator had held that the consent had not been unreasonably withheld.

The Court of Appeal looked at the context of cross leases as having terms of 999 years, so it is inevitable that homes will need to be rebuilt several times.

Pidgeon said it can’t be the intention that the alteration covenant was intended to preserve those structures frozen in time for 999 years.

The starting point must be that alterations will not only be desired but necessary over the term. Whether the lessors, acting reasonably, can withhold consent in a particular case is ultimately a question of fact.

Cross-lease titles have resulted in some cross owners.

“This is a much more flexible and balanced approach to take to the reasonableness of proposed changes and this will take a lot more into account the context of the neighbourhood, planning rules and how either property might be used as well as impacts of the proposed changes,” Pidgeon said.

The ruling would make it easier for cross-lease owners to get consent from their neighbours because of a more even approach.

“As intensification increases in our neighbourhoods, this means that cross-lease owners will need to anticipate their cross-lease properties being impacted by these planning changes, and it will become harder to hold out to requests, depending on the particular factual circumstances,” Pidgeon said.

The decision said about 18% of residential properties are cross-lease.

Plans for alterations to a house on a cross-lease title in Remuera. The case went to the Court of Appeal.

An Auckland Council report in 2017 found 215,958 cross-lease titles nationally.

Of those, 47% are in Auckland and about 44% of those had dwellings built in the 1970s or earlier.

Many of those places are nearing the end of their physical or economic life.

Yet the ability of owners to redevelop was described in the council report as “severely restricted, primarily due to the complicated nature of their ownership”, the decision noted.

Martelli and Keith bought their property in 2011, while Liow and Tan purchased their home in 2017.

The Court of Appeal ruling over plans for a property in Remuera is set to make it easier for cross-lease owners to get consent from their neighbours. Photo / PJ Law

The properties are on the same cross-leased fee simple title.

Martelli and Keith at the front have an exclusive occupation area of about 430sq m and a 114.5sq m house.

The dwelling is a single-storey, weatherboard house and there is a separate double garage.

Liow and Tan have an exclusive occupation area of about 307sq m and a 127sq m house, which is single-storey with an internal garage.

Andrew Barker, KC, for Liow and Tan cited an arbitrator’s findings that alterations would bring the front property significantly towards the back.

That would create a “tunnel-like feeling” in the common area.

A cross-lease property in Remuera showing the front home on the right, where alterations are planned, and the back home on the left.

Concerns were raised about bulk and location and the new outdoor area involving a “real change” in the way the areas were used.

It would become “the focal area for socialising”.

The back home owners were worried about loss of value too, Barker said.

If a party thinks their interests will be harmed on reasonable grounds, they are entitled to withhold consent, he argued.

Martelli, a lawyer, said that in 2021 they first asked the neighbours to consent to a single-level extension and pool, both in their exclusive area and complying with all council regulations.

“They have objected since then. After five years of exhausting litigation, we are grateful for the Court of Appeal’s decision, because it means the test for withholding consent reasonably is no longer the presence of ‘trifling detriment’ to the cross-lessor,” Martelli said.

That test favoured the back home owners because virtually any trivial objection would satisfy it, he said.

“We are delighted that the Court of Appeal has set a test that more fairly balances the parties’ interests. We do not yet know whether they will appeal again.

“If they do not, we anticipate another hearing before the arbitrator about whether, given the new considerations noted by the Court of Appeal, it is reasonable for Ms Liow and Mr Tan to keep withholding consent to our single-level extension and pool.”

Barker was asked to comment but did not do so by the time of publication.

Anne Gibson has been the Herald’s property editor for 26 years, written books and covered property extensively here and overseas.

Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.