The Court of Appeal has changed the rules on cross-lease consent. Auckland Senior Associate Dave Creswell explains what cross-lease owners need to know about title defects, flat plan updates, and what to do before you sell.
The short version
There is no universal duty to update the flat plan for every change, but if the plan no longer reflects the leased flat, the market will treat the title as defective whether the law requires it or not. Liow v Martelli has shifted the balance on consent disputes, but it has not changed the need to get consent in the first place and document it properly.
Introduction
Approximately 215,000 New Zealand residential properties are held on a cross-lease title. For most owners, that fact sits quietly in the background until they want to sell, refinance, or build something. Then the deck they added which encroaches on the common area without telling their neighbour, or the garage conversion nobody recorded on the flat plan, becomes a real problem.
This month the Court of Appeal handed down its decision in Liow v Martelli. The case started as a dispute between two Auckland neighbours over a proposed extension, swimming pool, and deck, and ended up taking three years and three hearings to resolve. The judgment has clarified the legal test for when a neighbour can reasonably withhold consent to alterations – and it shifts the balance compared to where the law has sat for the past three decades.
That case is specifically about consent. But the two issues I see most often with cross-lease titles are slightly different: whether consent was obtained in the first place, and whether the flat plan still reflects what is on the ground.
What is a cross-lease?
Each owner holds an undivided share of the freehold land and a lease over their individual dwelling – their “flat” – as shown on a deposited flat plan. The registered lease governs the arrangement: what you can do, what you need permission for, and what happens when you and your neighbour disagree. Most people have never read it.
Getting consent for alterations
The lease will often prohibit structural alterations and new structures without the prior written consent of the other cross-lease owners. That catches more than people expect, and can include:
- extensions and new rooms
- decks, pergolas, and anything attached to the dwelling
- exterior changes including cladding and paint
- new fencing
- landscaping changes to common areas.
Consent is required even where the works will have no effect on the neighbouring owner’s use or enjoyment of their property. That surprises a lot of people.
What consent should look like
It needs to be in writing, dated, and specific about what is being approved. It should identify the parties, confirm the owner undertaking the works will cover all associated costs (including any building consent), and deal with responsibility for a flat plan update (if required).
When consent was not obtained
In practise, most owners only discover the requirement when they come to sell. If consent was not obtained at the time, they need to get it retrospectively. Most leases require co-lessees to act jointly, reasonably and in good faith, and Liow v Martelli has now updated what “reasonably” means. The current approach is now whether a reasonable cross-lease owner, having regard to the interests of all of the other owners and the context of the lease itself, would consent in the circumstances. The Court of Appeal has now made it clear there is no rigid list of factors to consider when it is “reasonable” to withhold consent.
That said, a neighbour asking for retrospective consent may still use the process as leverage. It is not uncommon for consent to come with conditions attached, or in exchange for sign-off on the neighbour’s own outstanding alterations. If consent cannot be obtained or evidenced, a future purchaser or co-lessee can require the structure to be removed.
When does the flat plan need updating?
A cross-lease title is commonly described as “defective” when the structures shown on the flat plan no longer match what is on the ground – particularly where the footprint of the dwelling has changed.
Whether an update is strictly required turns on the wording of the lease and whether the change alters the depiction of the flat in a way that requires a new or varied instrument and plan. There is no legislative requirement to update the flat plan.
Not every improvement creates a practical defect. An open deck within an exclusive use area that does not change the flat’s depiction may cause fewer title issues than an enclosed addition that changes the building footprint or encroaches on another neighbour’s restricted area or the common area. The real question is what a buyer, a lender, and your co-lessees will accept.
What happens in practise
Most owners live with minor discrepancies for years without issue. The problems surface at transaction points: when you sell, refinance, or make an insurance claim.
At sale, a cautious buyer or their bank may require regularisation before settlement. Some lenders will down-value, impose conditions, or decline entirely until the title matches the as-built position. After an insurable event, an insurer may raise unconsented works when adjusting a claim.
Where works are minor, well-documented, and done with co-lessee consent on file, transactions often proceed with appropriate disclosure.
What to do if your title may be defective
- Get a lawyer to review your lease and record of title to identify what consent requirements applied to the works.
- Get consent: If consent was required and not obtained, seek retrospective written consent from co-lessees. Note that mortgagee consent may also be required under section 93 of the Land Transfer Act 2017 for certain variations.
- Get surveyor advice on whether a flat plan update is needed. If it is, your surveyor and lawyer will coordinate the variation instrument, the amended plan, and the sequence of consents. You will also need to engage with your co-lessees and their lawyers to update the flat plan for all parties to the cross-lease.
- Keep all documentation on your property file. Even where an update is not strictly required, having co-lessee consent and building approvals on record will smooth any future sale.
