The recent downturn in the economy, increased costs of materials and Covid-19 have all had detrimental effects on builders in the tiny homes business. The media has recently reported on the liquidations of New Zealand Tiny Homes Limited and Amazing Spaces Limited where customers have lost out on deposits they have paid. Unfortunately, the contracts to buy tiny homes often require a deposit and progress payments to be made and for the buyer there is a risk of losing those payments if the builder goes into liquidation. So, what happens if your tiny house builder goes bust? A recent case offers some hope for buyers who have a builder that goes into liquidation.
A glimmer of hope for tiny home purchasers'…
By way of recent example, the liquidators of NZ Tiny Homes were faced with the question of who owned the six homes which were partially completed by the company prior to liquidation. The homes were the only remaining assets of the company. The buyers had paid large sums towards their homes and were awaiting completion. Three buyers had paid the full purchase price and their homes were all largely complete. Because code compliance had not issued, property in the homes had not legally passed to the buyers. There were multiple other creditors of NZ Tiny Homes (including secured creditors) who also asserted claims over the assets.
The liquidators applied to the High Court to seek directions as to who had priority in the homes. In Manginness v Tiny Town Projects Limited (In Liquidation) [2023] NZHC 494 the High Court issued a ground breaking decision. It was held that individual purchasers are entitled to equitable liens over their homes to the extent of the value of the purchase moneys paid by them. This decision applied an equitable principle to get around the strict legal position that because title had not passed, the homes would ordinarily be available for the general pool of creditors. The buyers were therefore entitled to the incomplete building.
Whilst there was some good news for the buyers in the Tiny Homes case, the liquidators of Amazing Spaces told Stuff News that they are aware of some buyers that have paid deposits for homes that have not arrived into the country or have not yet been built. Those buyers may not have the remedy of an equitable lien or any remedy to get their deposit back. For the buyers that are lucky enough to get property in their incomplete homes (in both cases), they still face the ongoing costs of completing the unfinished work and obtaining code compliance.
If you have a contract to buy a tiny home and the builder has gone into liquidation, what should you do?
First and foremost, you should contact the liquidator. You will need to assert your claim over the building if it is partly completed. You will need to provide the liquidator with all relevant documentation related to the construction project. This includes the contract, invoices, receipts, and any other correspondence with the company. These documents will be essential in determining your position and protecting your rights as a creditor.
The liquidator is responsible for taking possession of the company’s assets, winding up the company’s affairs and distributing assets among creditors. You can inquire about the status of the company’s assets and liabilities and seek information regarding the possibility of getting a recovery. The liquidator is required to issue a report every 6 months on the status of the liquidation. You can download these reports off the Companies Office website.
You will need to assess your rights and whether you have a claim as a general creditor or whether you have a lien over a partially built home. This will be fact dependent and may depend on your contract, what you have paid and what work has been done. You should seek legal advice on this point from your lawyer.
If you have any building insurance or guarantee in place, it can provide additional protection in the event of a builder's liquidation. Some guarantees offer a warranty that offers coverage for loss of deposits, defects, incomplete work, and noncompliance with building regulations. If your builder goes into liquidation, you may have grounds to claim under this guarantee.
You will also need to consider alternative builders who can complete the project for you. This could involve engaging a new builder to finish the work. Getting compensation for this cost will depend on your rights under the contract and whether there are any surplus assets available in the liquidation.
Oscar Ward is a Senior Associate at Urlich Milne and is an experienced litigator with strong insolvency experience. Oscar’s email address is oscar.ward@uml.co.nz. This article is not intended to be relied upon as legal advice.
