The indefeasibility of title is an essential element of the property system. It ensures a system for determining who has priority or ownership of real property (i.e. land and buildings) when competing interests exist. Therefore, you must understand the principles of indefeasibility of title to ensure that you understand your priority rights and ownership over any of your properties and, in turn, can protect your assets. This article will explain the indefeasibility of title, the types of property it affects and why it is essential to your business.
This guide will help you to understand your options when you purchase a business with leased premises.
The Torrens Title System
There are two central property systems in Australia:
- the Torrens Title System; and
- the Old Title System.
The Old Title System was the central system until the introduction of the Torrens Title System in 1863. Today, you must register all property under the Torrens title system. However, you may have to deal with the Old Title System in some cases. Under Old Title System, no one title proves ownership. Therefore, you must establish ownership by examining an unbroken series of deeds following a paper trail.
Under the current Torrens Title System, more than a contract of sale for real property is required to transfer the property. After signing the contract, the dealing between the parties must be registered at the relevant land title office in the state or territory where the property is situated. Upon completion of registration, the property is properly transferred, and the interest in the property is registered.
The Torrens Title System simplifies dealing with land, as it relies on the indefeasibility of the title concept, where a registered interest has priority over all other interests. This system allows property buyers to rely solely on title registration to determine ownership or interest in the real property. Consequently, they do not need to investigate whether the prior transfer was valid. This provides a higher level of security in real property transactions.
Indefeasibility of Title
Indefeasibility of title means that you have a registered title over real property. Therefore, a third party cannot challenge your claim over your property. If you have indefeasibility of title, and your name is listed as the registered owner on the title records, your claim to the property is indefeasible. Additionally, any unregistered third parties can only claim the property belongs to them if in exceptional circumstances.
Even though you have indefeasibility of title, some interests can be registered over your property which will impact what you can do with your property. For instance, this may include:
- mortgages;
- leases;
- easements; and
- caveats.
These interests are registered over the title and given priority in the order of their registration. For example, if you purchase property and enter into a mortgage concerning that property. The mortgage will be the first priority registered interest after your interest as the owner. Only if you default on the terms of your mortgage can the mortgagee exercise its power of sale rights against the owner. Furthermore, if you wish to enter into a lease for the property with the mortgage registered over it, you will need the mortgagee’s consent.
Continue reading this article below the formExceptions to Indefeasibility
Generally, you cannot challenge the indefeasibility of a title. However, there are some exceptions where a court may consider overruling indefeasibility. Some of these exceptions include:
- fraud;
- forgery;
- prior registered interests;
- prior certificates of title; or
- misdescriptions.
Despite the above, a good faith purchaser who purchases a property for fair value without knowledge of competing or adverse claims for that property will still take indefeasible title to the property.
Example
In a landmark case in this area, party A and party B were joint property owners. To execute a mortgage over the property, party A forged the signature of party B. Party A failed to make payments under the mortgage, and the mortgagee exercised their powers of sale over the property and sold the property to party C for a fair value. Party B brought proceedings stating the mortgage occurred without their knowledge and challenged the title of party C. Despite the fraudulent conduct of party A, it was determined that party C as a bona fide purchaser, obtained indefeasibility of title as they were unaware of the fraudulent conduct.
Why Should You Care?
The indefeasibility of title grants you greater security in your property and land ownership. Whilst this may come up only a few times a week, it is crucial to ensure you register and conduct proper due diligence when purchasing or leasing a property. This may include ensuring the owner is on the title and being aware of any other interests on the title that may affect the property.
The indefeasibility of title does not just affect land ownership. It may also affect your:
- mortgage;
- commercial leases; and
- other property encumbrances.
The order of registration of such instruments will affect your rights generally, as priority is accorded by the date of registration in most Australian States, and any encumbrances registered prior may take priority. Therefore, reviewing the title of a property is an essential part of any property transaction.
Key Takeaways
Indefeasibility of title is an essential feature of the Torrens Title System. Indefeasibility establishes a system for priority over ownership of real property. Therefore, if you have indefeasibility of title, you will have priority of ownership of that property.
When considering purchasing or leasing a property, you must be aware of the concept of indefeasibility of title and conduct appropriate due diligence concerning the property.
If you need assistance registering an interest in a property or have questions about the indefeasibility of the title, our experienced property lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Indefeasibility of title means that no third party may challenge your title over that land. Other parties cannot claim the land belongs to them, as you have definitive proof of your title.
Generally, you cannot challenge the indefeasibility of a title. However, there are some exceptions where a court may consider overruling indefeasibility. Some of these exceptions include; fraud, forgery, prior registered interests, prior certificates of title or misdescriptions.
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