AFI Management Pty Limited v Lepionka & Company Investments Limited [2017] NZHC 3116

Section 179 Property Law Act 2007 (PLA) allows a mortgagee to elect to adopt an existing agreement for sale and purchase in respect of mortgaged property, provided that the mortgagee is entitled to exercise a power of sale at the time of adoption.

In a December 2017 judgment arising from a Hawkes Bay property development dispute, the High Court has substantially clarified the position for mortgagees in respect of the operation and application of section 179.

In particular the High Court held that adoption of an existing agreement for sale and purchase by a mortgagee under section 179:

  • Will only be effective as from the date that effective written notice of the adoption is actually served on the purchaser
  • Does not render the mortgagee liable for the mortgagor's/vendor's obligations under the agreement for sale and purchase
  • Will constitute consent by the mortgagee for the purposes of section 105 of the Land Transfer Act such that the mortgagee is bound to the estate or interest of the purchaser in the mortgaged property created by the relevant adopted agreement
  • Is an exercise by the mortgagee of its power of sale and accordingly subject to the s176 PLA duty to obtain the best price reasonably obtainable at the time of sale
  • Extinguishes a mortgagor's right to redeem under section 97 of the PLA, as from the date that effective adoption notice is served.

See the full judgment here.