The notice means Otago Finance could potentially take possession of the building and sell it to recover its $5 million loan.
However, lead developer Dan McEwan, of the McEwan Group, said yesterday the project was still viable and "had not gone under", but it did require a joint venture partner to proceed.
If Otago Finance and its parent company, South Canterbury Finance, "got behind the deal" it would "take off tomorrow".
Mr McEwan said he had been given "no clear indication" on how Otago Finance intended to use the powers under the property notice, but was aware it could lead to a mortgagee sale.
"Absolutely. But under the circumstances it would be difficult to do that [sell] as you have got to take certain steps under legal requirements," he said, declining to comment further on that process.
In general, a Property Law Act notice is part of a mortgage agreement between lender and borrower, which can be implemented if the lender does not receive scheduled mortgage or interest repayments.
If payments are not forthcoming, the mortgage security repayment provisions can be enforced, which can lead to the lender taking control of a project, gaining possession and rights to income, which can lead to a mortgagee sale to recoup the loan.
South Canterbury Finance chief executive Lachie McLeod confirmed yesterday the company held a first mortgage claim for a $5 million loan over the Princes St development and in recent weeks had issued the notice to the McEwan Group.
Mortgagee sale development option> From Page 1Otago Finance was "comfortable" with the loan at present.
Options, including bringing in a new developer or partner, were being considered, Mr McLeod said. Otago Finance was continuing talks with Mr McEwan.
"One option is to sell. Ideally, we would like to see someone else come in as the developer; not us," Mr McLeod said.
He declined to say why the property notice had been issued, saying only that it gave Otago Finance options.
A final decision would be made in a month. One possibility was to sell the building.
"Key to this is for us [Otago Finance] to protect our money. Developers will, of course, be looking at it from the other side," he said.
Mr McEwan said property notices had been issued against many developments around the country, because of the credit crunch.
When asked if the McEwan Group had defaulted on mortgage payments, he said interest payments had been met.
However, because the target of selling 30 apartments had not been met, the McEwan group had missed its development time-line and the subsequent loan to be renegotiated for the "mortgage construction" with Otago Finance had not gone ahead.
"This deal is not dead in the water. We need to get around the table and talk about the benefit for Dunedin," he said.
If the deal falls through, it will be the fifth time since 1993 owners of the nine-storey former chief post have failed to get a hotel proposal under way.
Mr McEwan went public early last month looking for a joint venture partner.
Last week, he suggested the project be "parked up" during the present economic downturn and this week said Dunedin's "public sector" should take over the project or it would not be completed.
At least four southern buyers of 24 of the planned 34 apartments have complained about a lack of information from Mr McEwan and are concerned they may lose out if the building is sold.
Mr McEwan said yesterday investors had been fully briefed on the project.
