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No more neighbour vetoes: Court of Appeal clarifies alteration rules for cross‑lease properties
The Court of Appeal has clarified when consent for alterations or additions under a cross-lease can be withheld, confirming that a cross-lease owner does not have an automatic right to veto changes proposed by another owner. While the case concerned residential property, the Court’s reasoning has broader implications for commercial property owners, investors and developers dealing with shared ownership structures.
In the recent decision of Liow v Martelli, the Court of Appeal upheld the High Court’s decision on the case which overruled the long‑applied test from Smallfield v Brown. That earlier decision had been widely understood as giving cross‑lease neighbours a near‑veto where proposed works or alterations caused more than “trifling detriment” to the cross-lessor. The Court of Appeal has now confirmed that approach is wrong in law.
Overview of key takeaways
The Court of Appeal’s decision clarifies that:
- property owners under a cross‑lease do not have an automatic veto over alterations or additions;
- the long‑standing Smallfield v Brown “substantial benefit / trifling detriment” test is no longer the law;
- the correct question is whether a reasonable cross-lessor, acting jointly and having regard to all cross-lessors’ interests, could withhold consent; and
- alterations may still be refused, but this depends on the facts and circumstances of each case, not rigid rules.
The decision is likely to make it harder to block sensible redevelopment, which is particularly relevant where land use intensification or redevelopment is contemplated.
Why this decision matters
Although most commonly associated with residential property, cross‑leases are also encountered in small‑scale commercial or mixed‑use developments. They typically restrict structural alterations or the construction of new buildings without the consent of the other cross-lessors, with consent “not to be unreasonably withheld”.
For many years, courts and arbitrators often applied the Smallfield v Brown approach, which suggested consent would only be unreasonably withheld where:
- the benefit to the owner proposing the works was substantial, and
- the detriment to the neighbour was only trifling.
In practice, this created uncertainty for owners seeking to redevelop or repurpose property and could impede commercial decision‑making.
The Court of Appeal’s decision
The Court of Appeal agreed with the High Court that the Smallfield v Brown test imposed constraints that do not appear in the wording of typical cross‑lease alteration covenants and are inconsistent with the purpose and context of cross‑leases.
Consent must be given by the cross-lessors acting jointly. A single owner acting alone cannot amount to “the lessors” withholding consent. Whether consent is unreasonably withheld is ultimately a question of fact.
The correct approach is to ask whether a reasonable cross-lessor could withhold consent in the circumstances, having regard to wide range of factors such as:
- the extent of physical interference with their privacy, light, and view
- the impact on their (or their successors in title’s) ability to develop their flat or restricted use areas, such as limiting available site coverage for such projects
- whether the proposed changes significantly affect their use or amenities
- the impact on the market value of their flat
- the reasonable expectations of the lessee seeking to make the alterations in respect of the enjoyment of their flat
- the current planning laws applicable to the property
- changes in societal expectations over time in respect of the use of residential properties
- other potential uses that could be of made the flat and/or restricted use area (as applicable) instead of the changes being proposed, and
- whether the alterations or additions will create an additional household unit.
No rigid rules
The Court of Appeal rejected rigid thresholds such as “trifling detriment”. Impacts on use, amenities, development potential, value and social expectations remain relevant but must be weighed as part of a broader assessment which the Court expects will evolve over time.
The Court emphasised that cross‑leases cannot sensibly be treated as preserving buildings in their original configuration forever. Over long lease terms, redevelopment, refurbishment and adaptation to changing market conditions will be necessary, and owners must expect a degree of “give and take”.
What this means for cross-lease property owners
For owners proposing alterations or redevelopment, the decision supports a more flexible, commercially realistic approach to upgrades, change of use or redevelopment. Early engagement, clear proposals and efforts to mitigate impacts on cross-lessors will remain critical.
For neighbouring cross-lessors, objections must be grounded in objectively reasonable concerns connected to the cross‑lease and the property interests involved. Reliance on assumed veto rights or blanket opposition carries increased legal risk.
Get in touch
If you would like advice on how this decision affects a cross‑lease property, redevelopment strategy, transaction or dispute, please get in touch with our Real Estate experts.
Special thanks to Jasmine Feehan and Deanna Moore for their assistance in writing this article.
