Do I Own my Tiny Home?

Tiny Town Projects Limited (in liquidation) (Tiny Town) went into liquidation in November 2022.  At this time six purchasers had made payments to Tiny Town but their homes had not been delivered to their sites.  It was Tiny Town’s business model to have its purchasers pay the purchase price by instalments throughout a build, which it would then use to fund materials and the works.  It did not deliver the tiny home to the purchaser’s site until a Code Compliance Certificate (CCC) had been obtained.  Furthermore, it would only deliver the tiny home when all outstanding payments had been made.

The six purchasers and Tiny Town’s liquidators were in dispute about ownership of the tiny homes.  Three purchasers had paid in full and their homes were 95% complete and another three of the tiny homes were only 40-50% complete.  The liquidators argued that the homes belonged to the company and the purchasers were simply unsecured creditors of the company.

Against this background the key issues for the Court were:

• whether ownership had passed to the fully paid purchasers,
• whether the parties rights were affected by provisions of the Personal Properties Securities Act 1999 (PPSA); and
• whether the purchasers had an equitable lien or the homes were held on trust for them.

The liquidators applied under s 284 of the Companies Act 1993 which allows liquidators to ask the High Court for directions in cases of uncertainty.

Ownership

The Court found that ownership of the tiny homes had not passed to the fully paid up purchasers.  This was because the contracts were for the sale of goods which meant that the provisions in the Contract and Commercial Law Act 2017 (CCLA) applied to the sale.  The agreements that the purchasers had entered into were only agreements to sell property.  The Court accepted that those agreements did not constitute an actual sale of the houses until the tiny homes were in a deliverable state.  Under the terms of the contract, this was when a CCC had issued and the purchasers were bound to take delivery of their tiny home.

So, unfortunately for the fully paid purchasers, the Court found that the property in the tiny homes remained with the company as at the date of its liquidation.

Interests under the PPSA

The purchasers argued that even if title had not passed, they had an interest under s 53 of the PPSA.  This section allows buyers in the ordinary course of business to take goods free of certain other security interests.  If this section applied, the purchasers argued that they could take their goods free of any competing interests in the seller’s insolvency.

The Court did not accept this argument for the reasons noted above.  There was only an agreement to sell goods between the purchasers  and Tiny Town and not an actual sale.  Until the homes were “sold” the purchasers did not have the protection under s 53 as that section required them to be “buyers”.

An Equitable lien

The purchasers next argument was that there was an equitable lien to the extent of the funds paid by them.  An equitable lien would survive insolvency and result in the  holder being treated as if they were a secured creditor.

The purchasers relied on an Australian case involving a transportable home.  However, the court said that case involved a contract to materials and work and did not decide whether an equitable lien could be applied in the context of sale of goods.  However, after canvassing other decisions, the Court found that the agreements with Tiny Town did give rise to an  equitable lien.  The Court relied on the following:

• The partly completed homes were readily identifiable as being applied to the separate contracts of each purchaser;
• Tiny Town could not sell the homes to any other purchasers in any “sensible commercial sense”; and
• There was identifiable subject matter to which the liens could attach.

The High Court accepted that the PPSA did not apply to equitable liens.  This meant the purchasers would have priority over any other security interests that existed under the PPSA.

Was there a constructive trust?

The Court did not accept there was a constructive trust.  The Court rejected this argument on the basis that purchasers’ dealings with Tiny Town were all based in contract.  There was nothing to suggest that Tiny Town had acted in any way in breach of any trust.  It simply carried out its ordinary course of business until it went into liquidation.

Key Takeaways

The net result was that the purchasers were treated as if they were secured creditors in relation to the payments made to Tiny Town.  It is anticipated that following the Court’s declarations the purchasers would have been able to negotiate the release of their tiny homes with the liquidators (at least for the completed three).

While the purchasers were successful in their claim against Tiny Homes the case illustrates the importance of carefully reviewing any sale and purchase agreement for a tiny home or similar off-site construction.  The payment of instalment payments throughout a construction period may lead to a false belief that a purchaser has ownership interests that they do not have.  Accordingly, it is important to consider how any sale contract deals with when property passes and if a security interest can be created in the tiny home during construction.  Parties should take legal advice before entering into any agreement to buy this type of property.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.