Lodging a Caveat is a very serious matter and people should be wary of using them without proper legal grounds. Commercial litigation lawyer and Senior Associate Charles Lethbridge looks at some of these issues.
What Happens after a Caveat is lodged in Queensland?
The registration of a caveat over the title to land (includes units, houses and any real property) acts as an injunction which prevents any further dealings taking place in relation to the land (for example, the sale or transfer of ownership of a property). Caveats serve as red flags and a warning sign for potential purchasers of a property that someone else is claiming an interest in a 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.
It is important to understand the risks associated with lodging a caveat before doing so. A caveat cannot be lodged without reasonable cause. If someone improperly lodges a caveat they may be liable for damages and legal costs to the owner of the property if the owner suffers damages as result of the caveat having been lodged. For example, if owners are prevented from settling on the sale of the property under a contract of sale and the purchasers terminate the contract or sue them for damages and/or specific performance.
When can I lodge a caveat?
Most commonly people lodge caveats when someone owes them money. That is, if someone is owed money by another person who owns land, they may seek to lodge a caveat over that land to prevent the property being sold so they can secure payment. However the fact that someone owes you money does not in itself allow you to lodge a caveat. In order to lodge a caveat you must have what is known as a “caveatable interest” in the land.
A caveatable interest means that you have a legal or equitable interest in land (i.e. real property). Caveatable interests can be created in a number of 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 clause which creates a security or charge whereby the customer (the buyer) charges their real and personal property. This is similar to giving a mortgage over your property when you borrow money from the bank;
- Purchasers of a property under a contract for sale have a caveatable interest in the property they are buying that is a recognised equitable interest subject to them completing the contract; and
- A person may have a caveatable interest in a property because they are beneficially entitled to that property pursuant to a trust. For example, it may have been agreed that the legal owner of a property holds a property as trustee for a beneficiary in his or her name.
Attwood Marshall recently acted for a company who was owed a sum of money by a person it had sold marble pavers too. The buyer refused to pay for the pavers. In the agreement for the sale of the pavers there was a “charging clause” as discussed in example 1 above.
Pursuant to the charging clause the buyer had agreed to charge all of his property in favour of the seller to secure any outstanding money that was owed to the seller. This created a caveatable interest in favour of the seller. Attwood Marshall obtained a title search and discovered that the buyer owned real property. Accordingly, the seller instructed Attwood Marshall to lodge a caveat over the buyer’s property. The buyer wanted to sell his property however the seller would not release its caveat until the buyer agreed to have a cheque drawn from the settlement proceeds in favour of the seller.
Applying to court to protect a caveatable interest
In Queensland a caveat will lapse (be removed from title) unless the caveator (the person who lodged the caveat) commences Court proceedings to protect their caveatable interest within 3 months of lodgment of the caveat. This 3 month period can be shortened if a person affected by the caveat gives the caveator written notice requiring them to commence proceedings. If the caveator receives such notice and does not commence proceedings and notify the Registrar of Titles that they have done so within 14 days of service of the notice, the caveat will lapse. Conversely, the requirement to commence proceedings does not apply to caveats lodged by the registered owner or by caveators who have the registered owner’s consent to lodge the caveat.
It should be noted that once a caveat has lapsed, another caveat cannot be lodged on the same or similar grounds, without first obtaining leave of the court.
Caveats which have not lapsed can only be removed by applying to the Court for an order removing the caveat, or, in limited circumstances, by requesting the Registrar of Titles to cancel the caveat. In order to defend such a Court application the caveator must show the Court that the caveator has a legitimate caveatable interest in the property.
In summary, it is likely that you will be forced to issue Court proceedings and/or have proceedings issued against you, if you lodge a caveat. This ultimately results in unnecessary legal costs being incurred to either prosecute or defend the Court proceedings.
If it is found that a caveat has been lodged improperly, the caveator may be liable to compensate anyone who suffers loss or damage as a result. For example, should the sale of the property be held up or fall through as a result of the caveat being lodged, and it is found by the Court that the caveator did not have sufficient grounds to lodge the caveat, the caveator may be liable for the losses associated with the loss of the sale.
It is very important to seek legal advice to establish if you have a caveatable interest prior to lodging a caveat, otherwise you could be liable to pay legal fees and compensation to the registered proprietor.
Benefits of lodging a caveat
Lodging a caveat can be a useful tool to protect your rights in relation to a property. In many cases the parties to a dispute concerning a person’s purported interest in a property will be reluctant to embark upon costly and timely litigation and this can provide leverage upon which to negotiate a satisfactory settlement between the parties.
It is important to be mindful of the legislated process that must be followed if the registered proprietor is not prepared to negotiate and requires you to file proceedings in the court to support your interests.
If you would like more information or want to obtain the best possible chance of a successful outcome in your dispute , please contact our Commercial Litigation Department Manager, Amanda Heather on direct line 07 5506 8245, email email@example.com or free call 1800 621 071.
We have an experienced dedicated Commercial Litigation team that practice exclusively in these areas.