Abandoned Housing Project in Taranaki, North Island, New Zealand: “When the Law is Against Equity, Equity Prevails’

Posted on October 5, 2023 | Leave a comment

A developer-builder by the name of NZ Tiny Homes abandoned their housing development project in Taranaki, in the west of New Zealand’s North Island.

The reason for the abandonment was the financial problems faced by the developer-builder company, NZ Tiny Town Projects Ltd. The financial problems were due to supply chain issues and the rising cost of construction following the outbreak of the COVID-19 pandemic.

The shareholders of the company applied for voluntary winding-up. The construction of the houses stopped at 95% completion. Additionally, the Code Compliance Certificate (CCC) for the houses has not been obtained from the New Plymouth District Council.

Some of the purchasers have fully paid the purchase prices. The developer-builder has been liquidated and under a liquidator’s control since November 15, 2022.

Following this, the aggrieved purchasers applied to the Auckland High Court to get back all their money paid and, if possible, to get ownership and possession of the abandoned houses from the liquidator and the liquidated developer-builder company. The liquidator is Tony Maginness from Baker Tilly Staples Rodway Auckland.

Purchasers include 80-year-old Carol Wright; David and Donna Craft; Rebecca and Brendon Gorringe; Hannah Elizabeth Terry; Gregor and Kelly Vallely; and Bernadus and Lydie Warmerdam.

Venning J. in the Auckland High Court held in favour of the purchasers on the grounds that the purchasers have an equitable lien over the abandoned houses. The equitable lien should take precedence over other competing claims in the liquidation, subject to the monetary value paid by the purchasers. The equitable lien warrants the purchasers to become beneficial owners of the abandoned houses. The purchasers have rights over the abandoned houses that they have paid for. Thus, the developer-builder is responsible for fulfilling their terms over the completion of the houses. It means the purchasers have a lien over the abandoned houses in return for their payment. This lien right arises due to equity and principles of fairness. Thus, it is called an equitable lien. The purchasers become lien holders over the abandoned houses, while the developer-builder can be considered the debtor. The debtor must repay the ‘consideration’ by ensuring that the houses can be completed and handed over to purchasers and cannot use the available money for other purposes except for the purpose of completing the construction of the houses and handing over the vacant possession of the duly completed houses to the purchasers.

What can be concluded is that the principle of priority of payment, which is usually enshrined in the liquidation law, giving priority to selected persons, including secured creditors and unsecured creditors, not to the aggrieved purchasers, is not invoked, giving way for purchasers to get their redress by way of an equitable lien.

As a result of the aforementioned issue, in addition to the losses suffered by the disgruntled buyers in the aforementioned project, numerous individuals are now avoiding purchasing homes from the builder-developer company.

Questions:

  1. Whether the aggrieved purchasers succeeded in rehabilitating the abandoned houses
  2. Can the aggrieved purchasers sue the liquidated developer builder company for compensation if the liquidated builder company cannot resume the construction of the incomplete houses?
  3. Whether the aggrieved purchasers obtain legal and equitable damages for all the troubles, losses, sufferings, and grievances caused by the builder-developer company
  4. Can equity and, in respect of the above case, equitable lien take precedence over the persons who have legal priority of payment over the liquidation money and assets?

Sources and References

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