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Implications for treatment of partially completed tiny homes in insolvency situations
The Court of Appeal has considered the approach to equitable liens applying to partially completed pods (tiny homes).
The Court of Appeal in Benjamin Brian Francis and Simon Dalton as liquidators of Podular Housing Systems Limited (In Liquidation) v Ilan Gross [2024] NZCA 528 held equitable liens should not apply in the circumstances, as it would lead to difficulties in applying the statutory priority regime (PPSA and Companies Act 1993). The statutory regime being preferred.
Background
In 2023, in Maginness v Tiny Town Projects Ltd [2023] NZHC 494 (Tiny Town), the High Court found the purchasers of tiny homes did have an equitable lien over the tiny home, limited to the money they had paid. This position was mirrored in another High Court judgment, arising from the liquidation of Podular Housing Systems Ltd, which has found its way before the Court of Appeal.
The issue for the Court of Appeal
The central question in the appeal was whether the law should recognise an equitable lien held by the purchasers of partially completed pods to secure repayment of instalments of the purchase price?
The decision
The Court of Appeal concluded that the better view is that a purchaser did not have an equitable lien over their partly-completed pod, as recognising such a lien would give rise to difficulties in applying the relevant statutory priority regimes in the context of insolvency.
Ultimately, to recognise an equitable lien in these circumstances would be to alter priorities as between purchasers of partly-completed pods (who had made payments towards the cost of those pods) and unsecured creditors - including purchasers of pods who had paid deposits but whose pods had not yet started construction at the time of liquidation.
The court observed there was no principled reason to do so and that New Zealand law should not recognise an equitable lien in those circumstances.
Implications
The Court of Appeal's decision has significant implications for the treatment of partially completed tiny homes is insolvency situations. It clarifies that purchasers of partly completed tiny homes do not have an equitable lien to secure repayment of amounts paid. The ruling also underscores the need for legislative clarity if the protections of equitable liens are to be extended in the above scenario.