What is a Caveat, and Why Do You Need One?

As a business owner, you may have an interest or claim in real property. Lodging a caveat can be a powerful tool for legally protecting this interest. In this article, we will explain what exactly a caveat is, how to lodge one and how they can help protect your business assets. 

What is a Caveat?

Simply put, a caveat is a formal warning or notice that informs the public that someone has a legal interest or claim on a specific piece of land or property for a particular reason. It is a type of statutory injunction that prevents other people from registering a particular dealing with real property.

The word caveat means ‘beware’, and lodging a caveat on real property warns anyone dealing with the property that someone has a priority interest in that property. The party who lodges a caveat is also known as a caveator.

Reasons for Lodging a Caveat

Many benefits come with lodging a caveat on a property. First and foremost, a caveat can safeguard your legal interests and rights in the property. By lodging a caveat, you can prevent any unexpected or unauthorised transactions from taking place without your knowledge or consent. 

For example, suppose Party A enters a lease agreement for a commercial property owned by Party B. The agreement specifies that Party A can purchase the property at the end of the lease term. Accordingly, Party A may lodge a caveat to protect this interest. If Party B runs into financial troubles during the lease term and decides to sell the property, the caveat would alert potential buyers of Party A’s right to acquire the property and pause any other sales.

Lodging a caveat is also beneficial when multiple parties seek to claim an interest in the same property. By lodging your caveat first, you can help establish the priority of your claim, putting you in a stronger legal position should there be a dispute. 

When you are a lender or creditor, lodging a caveat can also help protect your financial interests by securing your right to claim the property if the borrower defaults on their payments or obligations. 

What is a Caveatable Interest?

If you have an estate or interest in land through which registration of another dealing cannot protect, you may consider lodging a caveat to protect your legal position. This is known as a caveatable interest. You must ensure that you have a genuine interest at the time you are lodging the caveat.

Caveatable interests can include a:

• registered or equitable mortgage;
• transfer;
• purchaser under an agreement for sale;
• tenant (in certain circumstances);
• registered proprietor; and
• contractual rights.

Each state and territory has an individual system of lodging caveats. For example, in NSW, the Real Property Act 1900 governs caveats. When a caveat is lodged at the Land & Property Information (LPI), it effectively prevents the registration of further dealings on the property’s title until one of the following:

• the caveator formally withdraws the caveat; 
• the caveat lapses; 
• the caveator consents to another’s registration that deals with the property’s title; or
• a court order removes the caveat.

Any person interested in the land or wishing to make a claim on an estate may lodge a caveat. A person with an Australian court order restraining the registered proprietor from dealing with a property can also lodge a caveat.

What Detail Does a Caveat Require?

In NSW, when lodging a caveat, you must include the following:

• the caveator’s name and residential address or registered office, including an address where notices can be served;
• the name and address of the registered proprietor (we recommend that you complete a title search to ensure this information is correct);
• reference details for which the caveat relates;
• particulars of the legal or equitable estate of interest;
• a verified statutory declaration; and
• the signature of the caveator, lawyer or another agent of the caveator.

What if I Incorrectly Lodge a Caveat Without a Caveatable Interest?

Only a person who has a caveatable interest can lodge a caveat. Lodging a caveat without reasonable cause is a serious matter. 

When determining whether or not there was ‘reasonable cause’, the court will look at whether the caveator held an honest belief that they had such an interest based on reasonable grounds. However, if it is found that the caveat was lodged incorrectly, it will be removed from the Register. Additionally, a court may order you to compensate any person who suffers a financial loss due to your incorrect caveat. 

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Challenging or Removing Caveats

A caveat can be challenged or removed in several ways, including the property owner issuing a lapsing notice or the caveator submitting a withdrawal of caveat form. Additionally, in some states, a caveat may be removed by obtaining written consent from the caveator when a new dealing or plan is registered. 

The process of removing a caveat may differ based on which state or territory you are in. We have published articles about removing a caveat in the following states:

1. Victoria;
2. New South Wales;
3. Queensland; and
4. Western Australia.

Laws Governing Caveats

The law governing caveats varies in each state and territory. The table below outlines what laws apply in each.

Key Takeaways

As a business owner, understanding caveats and when you can lodge one will be essential when looking to protect your interests in real property, such as a registered mortgage. Before lodging a caveat, you should ensure you have a caveatable interest in the property. Otherwise, you may be liable to compensate the wronged parties due to an incorrectly lodged caveat.