Land Law

Lynette owns a 1 hectare property in Tamahere, which she purchased 10 years ago via a loan from Lucky Lending Ltd. Lucky Lending have a registered first mortgage over the property. Lucky Lending's mortgage is for $920,000. In addition to the mortgage granted over Lynette's property, the loan to Lucky Lending is also guaranteed by Lynette's brother Lewis, although this is only a personal guarantee.

Lynette is a dog groomer and operates her business "Tamahere Treasures", which is a doggy day care business in Tamahere, from the property. However, Lynette's business has been struggling recently, due to the COVID pandemic and the impact of lockdowns.

In March 2021, Lynette decides that she will need to invest in her business in order for it to survive. Because the New Zealand property market had recently taken off, Lynette's property value had risen significantly and, in March 2021, it was worth $2,000,000. Lynette renegotiated her mortgage agreement with Lucky Lending Ltd, and borrowed a further $700,000 to invest in her business, bringing her mortgage amount to $1,620,000. At Lucky Lending's request, a guarantee was also given over by Lynette's brother Lewis, although this is limited to the additional $700,000 Lynette borrowed and is a personal guarantee.

Lynette uses the money to try and expand and diversify her business. She decides to develop a plant centre and organic garden, which she thinks will appeal to pet owners in her networks. She purchases a small section of land (Section X), which is close to her Tamahere property, although it is at the end of a private road. Lynette purchases Section X by way of a mortgage from a finance company called No 2 Financial Limited. Lynette pays $750,000 for Section X, which is made up of $250,000 from Lynette and $500,000 borrowed from No 2 Financial. This mortgage is not registered.

Lynette doesn't have enough money to develop the section and meet her mortgage payments, so she decides to also rent part of her Tamahere property to Jackson Galactico, a "Dog Whisperer" who she has met through her pet grooming business. Jackson has found fame through YouTube, and thinks Lynette's property is the perfect backdrop for his videos. Lynette hopes Jackson's fame will attract customers to her business. Lynette and Jackson agree that, for the next 2 years, he will be able to film anywhere on the grounds of Lynette's property and, since Lynette doesn't use the guesthouse on her property, she says that Jackson could use it as an office (since Jackson lives elsewhere). They do not formalise their agreement in writing, but Jackson moves his equipment into the guesthouse and starts paying a fee to rent the guesthouse and to be able to film on the property. Lynette tells Jackson she will need to access the guesthouse at times, since she stores some of her dog grooming equipment there, but, apart from that, it's his to use freely. In fact, Lynette doesn't ever go into the Guesthouse and doesn't keep any equipment in there.

Section X has a registered right of way over the private road, which was granted by a neighbour, Ariel. At the time of the original grant Section X was a residential home. However, Lynette has converted Section X into the organic garden and plant centre, and business picks up in response, which means that there is significantly more traffic over the right of way. Ariel isn't happy about this, and wants to stop this from happening.

Since June 2022, Lynette has been experiencing financial hardship and has been unable to meet her mortgage payments on both properties. She decided to continue to make the payments on Section X and is up-to-date with her payments under that mortgage. On the other hand, she has not been able to afford to also meet her mortgage payments to Lucky Lending for the Tamahere property. Lucky Lending has contacted Lynette several times about this, but she ignored the letters. Lucky Lending then sent a formal notice advising Lynette of the amount outstanding, and giving her a month to remedy the default.

Lynette asks her brother Lewis for help and tells him about the formal notice she has received. Although Lewis is a guarantor of $700,000 of the money Lynette owes to Lucky Lending, Lewis did not receive the Property Law Act notice so he wants to know if he is bound by the guarantee? Lewis is particularly concerned because of the impact any liability could have on his other assets.

Lynette and Lewis are also concerned that Lucky Lending may intend to sell the property quickly, to sell it quietly, and to sell it to business associates. Lynette and Lewis are particularly concerned that Tino, who is a brother of one of the directors of Lucky Lending, wishes to purchase the property at the cheapest possible price. Tino has purchased other property in Tamahere near Lynette's and is a property developer. Not only that, Tino is married to Terri, who is the solicitor for Lucky Lending and it is Terri who is organising the sale of the property.

As it happens, despite Lewis and Lynette's fears, Terri is not particularly prompt about organizing the sale, and Lucky Lending take no steps after the Property Law Act notice expires. A couple of months pass and no further action is taken.

In fact, rather than sell the property, Lucky Lending enter into possession of the property. Lynette doesn't understand why this is being done, and repeatedly queries why Lucky Lending has done this. Lucky Lending do not answer her queries. However, she has learned that Terri has been spending a lot of time with Jackson Galactico, and Lynette knows that Jackson does not want the property to be sold.

However, three weeks ago, Lucky Lending Ltd put an advertisement in the Hamilton Press (a local newspaper only delivered to urban residents in Hamilton City) twice for an auction sale of Lynette's Tamahere property. Terri does not respond to any enquiries about the land, nor does she provide interested persons with any information such as copies of a LIM report.

A company called Fire Sale Ltd buys the property at a mortgagee auction. Fire Sale is the only bidder at the auction. A company search reveals that Tino is the director and shareholder of this property. The property sells at auction for $1,700,000. A recent valuation shows the market price of the property is approximately $1,900,000.

Advise on all issues.