A homeless shelter in Rotorua has been forced to close, over the prospect of a massive fine from the council for not meeting fire standards.

Founder, Tiny Deane, says at least 30 people have been forced back onto the streets over the weekend, including two terminal cancer patients, who otherwise would have been staying at the shelter.

Deane says the Rotorua Lakes Council has been chasing him up for weeks to comply with fire safety laws, and wouldn't him allow people to sleep in the property as a result.

He says he's now shut down in fear of a $200,000 dollar fine, with everyone being tipped out in the process.

"It's been really, really, bloody hard swallowing all this. I literally cried for an hour today - I was just so upset," he says.

Deane says he can't believe there's no way to overlook it on humanitarian grounds.

"I just can't believe that the Council can't come to the party."

Police were thrilled with the shelter, according to Deane, who told him night-time crime had dropped hugely since he opened.

But now, the beds are empty.

"We'd placed one cancer patient with someone, another one had already left and he went and slept out in the government gardens. We've proven our weight in gold in how we treat these guys. We just look after them," Deane says.