Smart Calendar Rules are triggered by confirmed reservations, including reservations made by property owners. You can also apply these rules to manual blocks, which includes preparation time blocks.
Also, a rule should be set directly between the "blocking" listing and any "blocked" listing.
For example, let's say that Listing A is set to block Listing B, and Listing B is set to block Listing C. If a confirmed reservation is received for Listing A, Listing B gets blocked. But a blocked Listing B won't activate the rule to block Listing C, because a block doesn't trigger Smart Calendar Rules. Therefore, to ensure that Listing C gets blocked, Listing A should have a rule to block Listing C, as well.