When it comes to the buying or selling of a property, the word “Caveat” tends to strike fear into everyone involved. The word itself is derived from Latin roots and means simply “stop” but what are Caveats, how do they work and how can they be removed?
Once lodged what is the effect of the Caveat? – For so long as a Caveat remains registered on a Title, no other transactions can be registered against that title unless the Caveat document itself specifically permits it. This means any attempt to register a transfer for the property a mortgage, lease or other dealing will all be rejected by the Titles Office. The existence of the Caveat itself is actually registered over the title and will show up on any search of the title deed along with details as to who lodged the Caveat and upon what grounds.
Who may lodge a Caveat? – It would be possible to devote an entire chapter in a book to this subject but in short:
- Any person or company who makes a legitimate claim of having invested money or money’s worth in the property and/or being promised a share in the title to the property but who have not actually had their name registered on the title.
- Anyone who has entered into a binding Contract for the purchase of the property be it under a standard 30 day settlement or extended terms including instalment Contracts.
- Anyone who has advanced money to the registered owner where the owner has pledged the property as security for repayment of the debt without having gone to the extent of signing an actual mortgage in registrable form.
- Anyone who has agreed to lease the property for a period in excess of 3 years.
- The Registrar of Titles himself if necessary to protect the Government, a minor, an intellectually/mentally impaired person or anyone inadvertently excluded from title due to an error made within the Registrar of Title’s office
Who is not entitled to lodge a Caveat? – Put simply, anyone who doesn’t fit any of the categories above but the common offenders are:
- A mere creditor. Anyone who simply claims the property owner owes them money has no right to lodge a Caveat to secure the debt.
- Any person who is merely negotiating for the purchase of the property even where the person claims exclusivity of bargaining rights such as a person who was the highest (under reserve) bidder at auction.
- A former spouse (married or de facto) to the property owner who is intent on taking the property as part of a family law claim following a relationship breakdown. Although for these persons there is a trick which might allow them to legally lodge a Caveat.
Once a Caveat has been lodged, how might the property owner have it removed? – If the Caveat has not been consented to by the owner or otherwise lodged by a buyer under a long term instalment Contract, it will actually lapse automatically after 3 months from lodgement unless the lodging party (called the “Caveator”) commences a formal Court action against the property owner so as to enforce whatever right of claim is being asserted. If the owner does not wish to wait 3 months, they may either bring an Application to the Supreme Court for an Order removing the Caveat or serve notice on the Caveator requiring the Caveator to start their own court action to enforce the Caveat within 14 days. With either a Caveat Removal Order under the first scenario or evidence of non-action by the Caveator by the 15th day under scenario 2, the property owner can go back to the Registrar of Titles and have the Caveat removed immediately.
Once a Caveat is removed or has lapsed, can a second Caveat be lodged on the same grounds? – No the law on this point is very clear the same Caveator cannot lodge a second Caveat over the property on the same grounds.
What are the consequences for a Caveator who has lodged a Caveat improperly? – Under the Land Title Act, anyone who lodges a Caveat improperly is required to compensate the land owner for any loss or damage they may suffer as a result. Under this same law, a Court is actually authorised to increase the compensation to include “exemplary” damages which is compensation above the value of any loss that the owner might actually suffer. Also if the person who has signed the Caveat is not actually the person who is making a claim (for example a Solicitor acting for that person) then it is the person who signed the Caveat that will become personally responsible for payment of the compensation.
Is it possible for more than one Caveat to be lodged against your property at any time? – Yes, if there are multiple persons with multiple varying claims to the property, each would be entitled to lodge a Caveat. It is not the case that the first Caveator is then able to claim dibs on the property and prevent registration of any other Caveats that might be second or subsequent in time.
How can a Buyer for a property protect themselves against the possibility of a Caveat being lodged? – Firstly and perhaps most importantly, once a Caveat is lodged, it is only the registered owner and any other person who holds a registered encumbrance on the property (such as a mortgage or an easement or a lease) who will be formally notified of the lodgement of the Caveat. Because a Buyer under a Contract is not any of those persons, it is usually critical that the Buyer conduct a search of the title on the morning of the proposed settlement to make sure that no Caveat has been lodged in the time between when the Contract was signed and the day for payment over the purchase price. If a search is not done and the money is paid over then the Buyer will have the right to sue the Seller to attempt to recover the money but in those circumstances, it could well be that the Seller has taken their money and bolted leaving the Buyer out of pocket and unable to take Title without first resolving whatever claim might be coming from the Caveator. If a Caveat is found to exist on the property, a Purchaser in that situation is not obliged to go ahead and complete the settlement and is instead entitled to either extend the date for settlement to a future time to allow the Seller opportunity to negotiate with the Caveator for terms of release or can alternatively hold the Seller to the original settlement Contract date, tend to settlement under the terms of the Contract and then rely upon the Sellers failure to have the Caveat removed as grounds to terminate the Contract. This would allow the Buyer to legally withdrawal from the deal and take their money to purchase a property elsewhere.
What is the relationship between a Caveat and a “Settlement Notice”? – A Settlement Notice is the modern day equivalent of the purchasers Caveat. Once lodged against the Title, no other transactions will be registered against the Title except any other Caveats that any other person may seek to lodge. Like a normal Caveat, a Settlement Notice lapses after 3 months or sooner upon completion of the settlement of the purchase of the property and there is also scope for a Settlement Notice previously lodged to be removed by the Registrar if it can be shown that the lodger has since abandoned the property or it did not have a proper entitlement to lodge it in the first place. There is also scope for the Notice to be removed by Application to the Supreme Court in the same way as a Caveat can be removed. Once the Settlement Notice has lapsed or otherwise been removed, a second Settlement Notice cannot be lodged against the property without first obtaining the leave of the Court.
Michael Zande is the Principal of Zande Law Solicitors, with 25 years experience in practice. Michael and his team have had extensive experience in conveyancing matters. Please feel free to review our firm and staff profiles at www.zandelaw.com.au
The information in this article is merely a guide and is not a full explanation of the law. This firm cannot take responsibility for any action readers take based on this information. When making decisions that could affect your legal rights, please contact us for professional advice.