Lodging a caveat is a serious matter, and people should be wary of doing so without proper legal grounds. Commercial Litigation Associate James Griffin looks at some of the issues commonly associated with caveats.
What happens when a caveat is lodged?
The registration of a caveat over the title to land acts as an injunction, preventing the land (which can include units, houses, or any real property) from being sold or transferred without the consent of the person who lodged the caveat.
Caveats serve as red flags and a warning sign for potential purchasers that someone else is claiming an interest in the property.
The Latin translation of “caveat” literally means “may he beware of.”
Most people don’t understand the consequences of lodging a caveat and often end up embroiled in complex, expensive legal proceedings.
A caveat cannot be lodged without reasonable cause, and the person lodging it must have a proper interest in the land.
If someone improperly lodges a caveat, they may be liable for damages and legal costs to the property owner if the owner suffers loss as a result – for example, if a sale falls through and the purchaser sues for damages.
When can I lodge a caveat?
A caveat will prevent any dealings in relation to the land being processed, until the person who lodged the caveat consents to that dealing.
In order to lodge a caveat, you must have what is known as a “caveatable interest” in the land. That is, a legal or equitable interest in real property.
Caveatable interests can be created in several ways, for example:
- An agreement for the sale of goods or services may create a caveatable interest in favour of the seller if it contains a charging clause, under which the buyer charges their real and personal property to the seller as security for payment of the good or service under the agreement. This is similar to giving a mortgage over your property when you borrow money from the bank;
- Purchasers under a contract for the sale of land have a caveatable interest in the property they are buying, recognised as an equitable interest, subject to completing the contract; and
- A person may have a caveatable interest as the beneficiary of a resulting or constructive trust. This will generally arise where a person (who is not registered against the title to the property) contributes to the acquisition cost or upkeep and maintenance of the property.
If you are a real estate agent and have discovered a caveat on a property during the listing or sale process, see our guide to navigating caveats when selling property.
Case study: a caveat lodged over an unpaid debt
Attwood Marshall Lawyers acted for a company owed money by a buyer of marble pavers who refused to pay. The sale agreement contained a charging clause (as in the example above), under which the buyer had agreed to charge all his property to secure any money owed to the seller.
This created a caveatable interest in favour of the seller. A title search revealed the buyer owned real property, and Attwood Marshall Lawyers lodged a caveat over it on the seller’s instructions.
When the buyer later wanted to sell, the seller would not release its caveat until a cheque was drawn from the settlement proceeds in its favour.
Key differences between caveats lodged in different states
Queensland
Applying to court to protect a caveatable interest
In Queensland, a caveat will lapse unless the caveator commences court proceedings to protect their caveatable interest within three months of lodgement, although this does not apply to a consent caveat.
This period can be shortened if a person affected by the caveat gives the caveator written notice requiring them to commence proceedings. And if proceedings (and notice of them to the Registrar of Titles) are not underway within 14 days of that notice, the caveat lapses. This requirement does not apply to caveats lodged by the registered owner, or with the registered owner’s consent.
Once a caveat has lapsed, another cannot be lodged on the same or similar grounds without leave of the court. Caveats that have not lapsed can only be removed by court order, or, in limited circumstances, by the Registrar of Titles. To defend such an application, the caveator must show the court they have a legitimate caveatable interest.
In short, lodging a caveat in Queensland is likely to lead to court proceedings, either brought by you or against you, with the legal costs that come with it.
Compensation and benefits
If a caveat is found to have been lodged improperly, the caveator may be liable to compensate anyone who suffers loss as a result – for example, if a sale is held up or falls through.
It’s important to seek legal advice to establish whether you have a caveatable interest before lodging a caveat, or you could be liable for legal fees and compensation to the registered proprietor.
That said, a caveat can be a useful tool. Parties to a dispute over an interest in property are often reluctant to pursue costly litigation, and a caveat can provide leverage to negotiate a settlement instead.
New South Wales
A caveat in NSW cannot be removed unless it is withdrawn (by the person who lodged it, or by order of the court), or unless it is ‘lapsed’ by the property owner.
How to remove a caveat
The most common way is by Lapsing Notice, issued by the property owner and served on the caveator. The caveator then has 21 days from service to obtain an order from the Supreme Court of NSW extending the caveat. If granted, the order must be lodged with the LPI (the NSW titles office) before the 21 days expire. If no steps are taken, the caveat lapses.
Re-lodging and contract clauses to watch for
Legal advice should be sought if a caveat lapses, as another cannot be lodged on the same or similar grounds without leave of the court.
If you are a property owner, take action to remove a caveat you don’t agree with. Otherwise, the claimed interest stays on the title until the matter is resolved.
It’s also worth reading any supply or purchase contracts carefully, as a “charging” clause can be linked to real property you own. If you’re unsure, get legal advice before signing.
Attwood Marshall Lawyers – your litigation and dispute resolution experts
Our dedicated Commercial Litigation team can assist with caveat enquiries in Queensland, New South Wales and Victoria. If you need advice about a property dispute or a caveat, contact our Commercial Litigation Department Manager, Georgia Trapp, on (07) 5506 8278, email gtrapp@attwoodmarshall.com.au, or free call 1800 621 071.
Our lawyers are available at our Coolangatta, Kingscliff, Robina Town Centre, Southport, Brisbane, Sydney and Melbourne offices. Need assistance outside regular business hours? Our Robina Town Centre office is also open Thursday nights until 9pm and Saturday mornings until 12 noon.
You can also book an appointment online with one of our commercial litigation lawyers.
