Thirty years of arbitration practice dealing with disputes over alterations to cross-lease properties was overturned in a High Court decision following a dispute between neighbours in an Auckland cross-lease residential development. The ‘trifling detriment’ test previously in use has been replaced; the test now is to look at the overall effect of proposed building changes should cross-lease homeowners put their dispute to arbitration.
Multiple residential units on a single site with cross-lease ownership do not have a body corporate. Owners of each property have contractual rights of occupation and exclusive possession set out in their respective leases.
These leases typically have clauses prohibiting fellow owners from making structural changes to that part of the building where they have exclusive possession, without first getting consent from neighbouring owners with neighbours not allowed to ‘unreasonably withhold’ consent.
Designed to prevent hodge-podge alterations affecting a development’s integrity, these clauses are often promoted by real estate agents as a strong marketing point when selling cross-lease properties; your neighbour cannot make changes affecting your view, without your consent.
As is common in commercial contracts; cross-lease contracts require disputes between neighbours about proposed alterations be first put to arbitration.
The litmus test for arbitrators has been a 1992 case; a dispute between neighbours on a cross-lease site in Auckland suburb Devonport. Arbitrators created a ‘trifling detriment’ test from the judge’s ruling that ‘consent will be unreasonably withheld only where the benefit to the party seeking the change will be substantial and the proposed alteration would produce only trifling detriment to the neighbour.’
This ’trifling detriment’ test has given cross-lease neighbours what in effect is a right of veto; any neighbour’s proposed building alteration which is not trifling can be blocked.
Strict application of this test was challenged in a current dispute between cross-lease neighbours on Waiatarua Road in the Auckland suburb of Remuera.
The High Court was told owners of flat two demolished an existing deck in 2018 and replaced it with two larger outdoor decks. They did not get their neighbours consent, as required by their cross lease.
Three years later, owners of flat one put forward a proposal to radically upgrade their flat by extending their building closer to the common boundary, adding an in-ground swimming pool and new decking which would cover most of the backyard. Owners of flat two refused consent.
Their dispute went to arbitration. Applying the ‘trifling detriment’ test, the arbitrator ruled consent was validly withheld.
Flat one owners challenged use of the test.
Justice Gault said arbitrators have taken too narrow a view of the judge’s 1992 comments when settling on a ‘trifling detriment’ test. No specific formula can be laid down. A fact-specific assessment is needed in each case to determine whether a cross-lease neighbour has unreasonably withheld consent to proposed alterations.
As a guide, Justice Gault said arbitrators could make use of rules developed by English courts dealing with disputes over structural changes proposed for properties occupied on long-term residential leases. There are many long-term residential leases in UK major cities running for centuries.
Martelli v. Liow – High Court (29.04.24)
24.107