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This is probably what I will end up going with. Spoke to the real estate agent and she felt that potential tenants won't have an issue with me occasionally coming into that part of the yard (via a gate) to get out the lawn mower if it means that I will be mowing their part of the lawn as well...

These are the options I'm currently weighing up: (1) Provide a small yard space off the side of the flat that includes the shed with the provision that I will need to access the shed (on occassion). Will providing this access be a significant detractor for tenants? (2) Provide no real yard...

They're actual trees, not stumps. The council wouldn't allow me to remove them.

That wouldn't make a clothesline very accessible for the house. There's a garage at the end of the retaining wall and only a very narrow space between it and the wall - not enough to give access to the yard.

There is a side setback of 900mm +, the angle of the picture is probably slightly deceptive on that front.

Thanks Blurbman, one main reason for putting the 3x3m shed there is that it was really a wasted space otherwise - there are three large tree trunks around it and it's tucked away nicely behind them on a newly built concrete slab. So moving it isn't really an option. I agree regarding the sun...

Thanks ozsupra. The house is actually currently PPOR, which I should have stated in my original post. This is the reason why I still want access to the shed, and why I put the break in the retaining wall. The above shows roughly where I was planning on putting the fence (in yellow)...

I have my own ideas about where I should locate a fence to separate it a granny flat from the main residence on the property, but thought it would be good to take on the input from others. To make it easier I've included a couple of pictures to show the layout and also the gradient (the property...