Can building materials be repossessed when a builder goes into liquidation?

A homeowner engaged a builder to carry out a residential renovation. Partway through the project, the builder’s company was placed into liquidation.

Although the homeowner had paid the builder, a supplier attempted to repossess materials used in the renovation on the basis that it had not been paid by the builder.

The supplier relied on a retention of title (“Romalpa”) clause in its terms of trade, which provided that ownership of the goods did not pass to the builder until payment was made in full.

The concerned homeowner sought legal advice.

Personal Property Securities Act 1999 (PPSA)

Fortunately for the homeowner, the goods in question had been installed into their house and could not easily be removed.

In New Zealand, retention of title clauses are difficult to enforce unless the supplier has registered a security interest under the PPSA. Even where a security interest is registered, once goods have been installed as part of a building project recovery is generally impractical.

Suppliers are often better protected by contractual terms that entitle them to receive the proceeds of sale when goods are on-sold by the builder.

Both the supplier and the homeowner are entitled to lodge a claim with the liquidator if owed money by the builder.

Conclusion

Homeowners can reduce their risk by ensuring they engage a builder with a good reputation and avoid paying money in advance if possible.

It’s vital to ensure that you sign a robust building agreement to protect you if things go wrong and to clearly outline the obligations of both parties. Please see this article for more information about what should be included in a building agreement.

Suppliers should ensure any security interests are properly registered under the PPSA and consider contractual protections over sale proceeds.

Early legal advice can help all parties manage these risks before problems arise.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.