Buyers of the troubled Flat Bush 105-home Ormiston scheme by DDL should take two steps, according to a property law expert.
Nick Kearney, special counsel at North Shore solicitors Davenports Law, says worried buyers who are unknowing victims of the receivership had options.
"Should I be worried?" asked one concerned DDL buyer this week, saying his home was under construction but not completed and he wonders if and when it will be.
Kearney said everyone's own personal and financial situations would differ and each contract could also be slightly different. So it was not possible to apply a broad-brush approach.
But there are some important aspects to consider right now.
"Check your contracts and talk to your lawyers," he advised buyers, saying sunset clauses could become important.
There's little more they could do because all homes were now under the receivers' control.
Insolvency experts at accountants Calibre Partners were last Friday appointed receivers by Vincent Capital over a loan, leaving many buyers worried and one saying her "dream home" had turned into a nightmare. Work was slow, she paid a deposit of nearly $70,000 more than two years ago and is worried about where her townhouse will be finished.
Kearney said he understood people's worries.
"At the moment, your deposit is safe and can't be taken by the receivers unless there's a settlement. It's presumably being held by a stakeholder which is a party that is independent of the vendor and the purchaser. That party cannot deal with the deposit without the agreement of both parties.
"The worst-case scenarios are that the buyers might end up not having a property at the end of all of this. Or else they might have one but be asked to pay substantially more due to rising costs," he said.
He understands people who bought places about two years ago will be worried and few would understand the potential implications of receivers taking over the businesses which they are buying their homes from.
When they talk to their lawyer, they could look at aspects like potential cancellation via the sunset clause.
Kearney said buyers could also seek advice about whether they should lodge caveats on the titles.
There might be provisions in the contract saying these can't be lodged and he said good legal advice around the efficacy of this clause could cost around $2000 on the caveat issue alone.
"For now, buyers should continue as if the development is still going ahead, even though a third party being the receiver has taken over."
The contract may also have a clause relating to termination if there's receivership or insolvency of the vendor, but the tricky legal problem here was that the vendor was not in receivership - rather its related party is, Kearney noted.
"That probably doesn't give the buyers any cancellation rights under that provision."
The same problem might be apparent if the buyers wish to exercise their rights under the sunset clause, Kearney said.
It is for these reasons that they need to seek legal advice and the terms of the contract and the novation, become important.
"What is critically important is that a wrongful termination can allow the vendor to argue that the deposit is now forfeited because of the buyer's breach of contract. If buyers wish to protect their money, they need to be very careful with their choices after taking advice. This is not a time for rushed decision-making," he said.
Kearney practices in residential and commercial property law, including development and contributory mortgage investments.
The receivers were acting on behalf of the secured creditor under the security contract entered into between the developer and the funder, he said.
Unlike a liquidation, which is a statutory process, a receiver is essentially the agent of the company in receivership and has duties to the company, the security holder who appointed them, and also secured creditors, Kearney said.
"A receiver will be focused on either selling the development as a going concern or completing the development and settling the purchases and collecting the sale proceeds so that the secured creditor who appointed them is repaid its advances," he said.
A receiver has the powers set out in section 14 of the Receiverships Act which are sparse, but also whatever powers were granted to it under the security contracts (which we may not see, he said.
"A receiver has no more ordinary powers than a director of a company. Other secured creditors, if they are comfortable that the money they are owed can be or will be repaid, can leave matters in the hands of the receivers, or they can issue statutory demands and liquidate the company if their debts are not paid," he said.
Buyers' deposits should be safe in a lawyers trust account and should be held by that law firm as a stakeholder - not for the vendor nor the purchaser. So the receivers should have no ability to call on those deposits until and unless the development is complete and settlement is due, he said.
"The risk here for buyers is that because of the delays and therefore the cost of completing the dwellings for a new builder will be greater, that the purchase price may have to increase.
A receiver may be able to sell the development for an amount that will realise secured party's debts and the buyer is not required to honour the agreements and so the buyers may be forced with a choice to buy at a greater price, or have the agreements cancelled and the deposits returned.
An advantage for the buyers is that in this market, buyers are hard to find, funding is hard to get, and so a buyer of the development may want to keep most of the 100 or so buyers," Kearney said.
Buyers said they agreed to pay around $675,000 two years ago but with the Auckland property values rising at more than 20 per cent annually, their homes could be worth nearer $900,000 once finished.
They are worried they won't get these places and could lose two years out of the market.
Kearney said the contracts would have sunset dates.
One buyer said her sunset clause was July 22 this year so the home had to be finished and delivered to her by then as she understood it. She is a first home buyer who has saved hard, got some family help and is purchasing with her partner.
A total of 122 Auckland properties in four projects are with the receivers.
Neale Jackson of Calibre on Tuesday quantified the scale of the projects hit by financial issues at the business DDL which stands for "delivering dreams limited".
Jackson said the large block of land at 397 Ormiston Rd has 79 apartments under construction, 26 townhouses largely complete and 17 residential sections or sites.
All up, 105 homes are under construction in terrace and apartment styles and in varying stages of completion, he indicated.
What stages each place is at, he was yet to ascertain.
"The developer planned to construct that on the property at 397 Ormiston Rd. We are currently assessing the status of the development works and will update pre-sale purchasers as plans, timing, etc become clearer," Jackson said.
The four projects are Maison D'Ormiston, Ormiston stage 2, Mission Heights and Ormiston Heights. They are at 370 and 397 Ormiston Rd.
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