WHAT IS A CAVEAT?
A caveat notifies others of an interest in land or property. It acts as a warning to the public that someone has a claim or legal interest over the land/property in question. The caveat itself does not grant any actual interest in the property.
Once a caveat is lodged on a land title no further transactions affecting the property can be registered without the consent of the person lodging the caveat (the caveator).
A caveat has the practical effect of “freezing” the real property and preventing it from being sold. Importantly, only those with eligible interests over the property can lodge a caveat on title.
We discuss eligible interests below. If you do not have an eligible interest and you lodge a caveat, you may be liable to pay compensation to anyone who suffers financial loss!
HOW CAN YOU PROTECT YOUR INTERESTS?
Caveats can be beneficial to protect your interests in many circumstances.
For example:
- A person who is purchasing a property may lodge a caveat prior to having the title transferred to protect their interest from a dishonest seller who may be attempting to sell to multiple people.
- Banks, lenders, and liquidators may be able to lodge caveats to secure their financial interests and ensure that property is not sold without their prior knowledge or consent.
- An informal loan such as to family or friends may be formalised by a loan agreement which gives the lender a caveatable interest over the borrower’s property in order to avoid any loss or inability to claim compensation if the relationship breaks down.
- If two partners financially contribute to a property in partner A’s name, partner B may choose to lodge a caveat to signify their interest and ensure the property cannot be sold without their knowledge.
WHAT IS A CAVEATABLE INTEREST?
A caveat can only be registered when the caveator has a caveatable interest. A caveatable interest arises under s 74F of the Real Property Act 1900 (NSW) (RPA) and relates to a party who has an express legal or equitable interest in land.
There has been a lot of litigation in relation to what constitutes a caveatable interest. In some circumstances it is clear and in others it is unclear.
WHEN DOES A CAVEATABLE INTEREST ARISE?
MAY
Examples of parties who may have a caveatable interest include:
- a person with a contractual right;
- a lender who loans money secured over real property;
- a purchaser under a contract of sale;
- a charging clause over real property;
- a registered mortgagee;
- a liquidator or receiver who has incurred fees realising real property; and
- a secured creditor.
MAY NOT
Examples of persons who may not have a caveatable interest include:
- a person who owes a debt or is pursuing a debt;
- a person who has improved the property (e.g., a builder or tradesperson);
- a shareholder of a company;
- a beneficiary of a discretionary trust; and
- a liquidator because of their appointment to the company.
HOW DO I CHALLENGE A CAVEAT?
If a caveat has been lodged but you do not believe that the caveator has an interest, there are two ways to try remove the caveat:
- An application can be made to the Supreme Court; or
- A notice can be served under s 74J of the RPA which gives the caveator 21 days to obtain an order from the Supreme Court extending the operation of the caveat pursuant to s 74K of the The decision to grant an extension is discretionary but the Court will consider a number of factors including:
-
- whether the caveator’s claim has substance; and
- whether the balance of convenience favours the caveat being extended (e.g. the caveat is not being used as a blackmailing device, or to bring unwanted pressure upon a registered proprietor).
Generally, if a court is satisfied there is a valid caveatable interest, it will readily grant an extension.
WHAT IF I LODGE A CAVEAT WITHOUT A PROPER BASIS?
Lodging a caveat without a reasonable cause will require the caveator to pay damages for any consequential loss suffered by the registered proprietor, in accordance with s 74P of the RPA. For example, in illpalm Pty Ltd v Wlson Hillpalm Pty Ltd v Wilson [2009] NSWSC 362, auction and advertising costs were recoverable in circumstances where an auction was cancelled due to lodgment of a caveat without reasonable cause.
There is a test which the court applies to determine whether there was reasonable cause to lodge the caveat. The test is whether the caveator had an honest belief, based upon reasonable grounds, that he or she had such an interest.
MORE FROM THE ‘A BRIEF UPDATE’ SERIES
