In a property transaction, you may need to lodge a caveat or respond to someone who has lodged a caveat against your property. A caveat serves as a notification to potential buyers that someone else has an estate or interest in the land which they want to protect. Below, we answer five FAQs about caveats including the risks of lodging a caveat.
1. When Can I Lodge a Caveat?
Parties commonly lodge a caveat in the following circumstances:
- a purchaser protecting their interest under an agreement for sale;
- a mortgagee protecting their interest under a mortgage or an equitable mortgage;
- a tenant protecting their interest under a lease or agreement to lease;
- a beneficiary protecting their interest under a trust;
- a party protecting their right to receive a portion of the proceeds of land upon a sale; or
- a person is protecting their interest arising from contributions which he or she has made to the purchase price.
A caveat can also serve as a form of a statutory injunction. After a party lodges a caveat, this prevents other parties from registering inconsistent interests.
2. What are the Risks of Lodging Caveats?
When a party lodges a caveat improperly or without cause, they may be responsible for paying compensation and damages to the person who suffers a loss as a result. For example, lodging a caveat to try to delay or prevent someone from selling their property.
3. Can I Lodge a Caveat on Someone’s Property Who Owes Me Money?
Before you can caveat someone’s property, you must make sure that you have a direct interest in that property either in law or equity. If you answer ‘yes’ to the following questions, you may have a direct interest in the property:
- Did you contribute financially to the purchase of the property?
- Did you contribute to the maintenance or upkeep of the property?
- Do you have some form of agreed or promised entitlement to the property which you have acted upon and relied on to your disadvantage?
A better way of securing your loan against the land of the person who owes you money is to convince him or her to enter into a mortgage. Ideally, before loaning a party money, you would have entered into a formal loan agreement with the condition that you are entitled to register a mortgage on the borrower’s Certificate of Title. Banks typically enter into this type of loan.
If you choose, however, not to register the mortgage on the borrower’s title, you have the option of lodging a caveat instead. This option would be on the grounds that the loan agreement gives you a right and interest in their land.
4. Should I Lodge a Caveat on my Ex-Partner’s Property?
If you have been making contributions to mortgage repayments on your ex-partner’s property but moved out of it due to your relationship ending, you will have an equitable interest in the property. You can, and should lodge a caveat on the property for two main reasons.
1. To prevent the sale of the property without your knowledge
A sale of a property with a caveat on the title will prevent the purchaser from registering a transfer of ownership. It will force your ex-partner to reach a financial agreement with you before he or she can dispose of the property.
2. To prevent your ex-partner using the property to borrow money from the bank
When lending money, the banks typically want to register their mortgage interest against a property. It allows them to sell the property to recover their loan amount if you cannot meet the repayment obligations. If there is a caveat on the property title, the bank or lender will not be able to register its mortgage interest on the property title. This prevention means that your ex-partner cannot use the property as a form of security to borrow more money.
5. Should I Lodge a Caveat After the Exchange of Contracts for the Purchase of Land?
If you are a purchaser under a contract for the sale of land, then you have a caveatable interest in the land. Generally, parties don’t lodge a caveat after an exchange of contract. It’s, however, advisable for purchasers to do so if they wish to eliminate any risk of the sale falling through. The High Court’s decision in Black v Harnock (2007) HCA 31 demonstrates how a simple caveat could prevent a costly headache.
The Smiths owned a rural property which they were selling to the Garnocks. They consequently entered into a contract for the sale of land. The Smiths also owed $228,000 to an accounting firm. The accountants obtained a judgment against the Smiths in the District Court for the money owing.
The day before the settlement of the land, the accountants obtained a writ of execution against the property. The writ gave them the power to sell the property to pay the judgment debt. The Garnocks were unaware of the registration of the writ, which occurred after their solicitor performed a final title search which showed a clear title.
The parties reached a settlement. Unfortunately, the Garnocks could not register the transfer of ownership because of the earlier registration of the writ. It meant that the Garnocks paid for the property, but the Torrens registration system could not register them as the owners.
The matter went all the way to the High Court. The Court held that the writ took priority because the accountants had registered it first. This meant that the Garnocks had to pay the accountants to remove the caveat formed due to the Smith’s debt. Had the Garnocks lodged a caveat upon exchange of contracts, the accountants would not have been able to register the writ as there would already be a pre-existing title on the property.
A caveat is a useful tool to protect a party’s interest in land. You should take caution, however, to ensure that a caveatable interest exists or else the owner of the property may seek damages or compensation if the caveat prevents them from selling their property. If you have any questions or need assistance removing a caveat, get in touch with our litigation lawyers on 1300 544 755.