What is a Caveat and what you should know?
In Victoria, a caveat is used to record on the land’s title a person’s interest in that land that would not otherwise be reflected on the title, or are awaiting subsequent lodgement of documents to formally record that interest.
This article addresses the following questions, in an overview:
- what is the purpose of a caveat?
- when should a caveat be lodged?
- how should a caveat be lodged?
- what are the damages that can be awarded because of wrongly lodged caveat?
What is the purpose of a Caveat?
In Victoria, section 89 of the Transfer of Land Act 1958 authorises the Registrar or Titles (“Registrar”) to register caveats against the title of the land on the application of a person. It is important to note that the role of the Registrar is not to assess the legitimacy of the application or the underlying interest in the land asserted.
The predominant or primary purpose of lodging a caveat is: [1]
- to warn the relevant Registrar of Titles of a claim; and
- to ensure that the caveator is given notice to oppose any dealing with the title of that land before that dealing can be registered.
There are many ways that a caveatable interest in land can arise. The most common interests, include:
- a purchaser’s interest acquired pursuant to a contract of sale with the vendor;
- equitable interest through a trust;[2]
- an interest as an unregistered mortgagee;[3]
- an interest pursuant to a charge (often created via their credit application forms);[4]
- a family law interest in matrimonial assets; and
- the interest of a trustee in bankruptcy where land has vested in the trustee.[5]
When should I lodge a Caveat?
Your caveat should be lodged as soon as your interest in the land arises, or as soon as practicable thereafter. This is to ensure that others are put on notice as to your interest, thereby avoiding the possibility of someone else obtaining a competing interest (such as a lender securing a loan against the property), which would result in a priority dispute with that person who subsequently acquires an interest in the land.
If you are found to have unreasonably delayed the registration of your caveat, you might find that a later created interest in the land takes priority over yours.[6]
How do I lodge a Caveat?
Caveats are now lodged predominantly through an electronic subscription service called PEXA. Given the implications of recording a caveat incorrectly, which can include significant financial damages and court costs, you should consult a solicitor that can advise you whether or not to lodge a caveat on your behalf. They can then do so through their PEXA subscription.
It is important for the caveat to accurately reflect your interest in the land, including identifying appropriate prohibitions on further dealings with the land. If your caveat is contested, it may only be amended in exceptional circumstances[7].
How can a Caveat be removed?
The most common way that caveats are removed is withdrawal by consent. This usually occurs when the land subject to your caveat is being sold, or the interest you were claiming becomes registered more formally (e.g. a mortgage). If your caveat secures an amount of money you are owed, the land owner should invite to withdraw your caveat when they have found a purchaser and are seeking to settle, in return for a share of the proceeds of sale that your interest entitles you to.
There are also procedures for dealing with ‘contentious’ or ‘hostile’ caveats, where the underlying interest in the land protected by the caveat is disputed.
There are two main methods for dealing with a hostile caveat:
- the first method is to request that the Registrar issue a lapsing notice; [8] or
- the second method is to issue proceedings in the Supreme Court for the removal of the caveat. [9]
The two methods, lapsing notices, and issuing of proceedings, are examined more closely below:
1. How does lapsing notices affect Caveats?
A lapsing notice received from the Registrar will inform you that your caveat will be removed from the title of the land on a given day (being not less than thirty (30) days from the date of the notice) unless, before that day, you institute proceedings to maintain your caveat and notify the Registrar of Titles that such proceedings are on foot.
Accordingly, it is imperative to bring a lapsing notice to your solicitor as soon as possible if you wish to ‘defend’ your caveat.
2. How does the issuance of proceedings affect Caveats?
Alternatively, the owner of the land or another interested party can initiate proceedings to have your caveat removed from the title of the land. This will involve an examination by the Court of the underlying interest that you have in the land that is protected by your caveat and consideration of the balance of convenience[10].
The onus will be on you, as the caveat holder, to justify your underlying interest in the land[11].
Where the land is to be sold imminently, it is common (and practical) for the parties to agree for the caveat to be withdrawn so that the sale can proceed, with monies that are subject to the competing interests being retained (either paid into Court or quarantined in a solicitor’s trust account) from the sale pending the Court’s determination of your interest in the land.
What are the damages that can be awarded when lodging a Caveat?
The Court can order payment of compensation to a person who suffers loss and damage because of a caveat having been lodged ‘without reasonable cause’[12].
To be awarded compensation, a plaintiff must first demonstrate that there was no interest in the land as asserted in the caveat, and that the person lodging the caveat did not have an honest and reasonable reason to claim that it had that interest.
Damages suffered can include:
- loss of value of land caused by a caveat’s impact on a land owner’s opportunity to sell the property according to a contract.[13]
- Interest and costs payed by a vendor due to a delayed settlement of a property sale.[14]
How Can DSA Law Help?
If you are seeking advice regarding a caveat and believe you could benefit expert legal assistance, please Contact Us or one of our Property Lawyers at DSA Law on (03) 8595 9580.
[1] J. & H. Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 per Windeyer J.
[2] Schmidt v 28 Myola Street Pty Ltd [2006] VSC 343
[3] Avco Financial Services v White [1977] VR 561
[4] ibid.
[5] E.g. reference is made to such lodgement in section 126(3) of the Bankruptcy Act 1966 (Cth).
[6] E.g. LTDC Pty Ltd v Cashflow Finance Australia Pty Ltd [2019] NSWSC 150. Counter-reference the decision of the WA Supreme Court in Bunnings Group Pty Ltd v Hanson Construction Materials Pty Ltd & Anor [2017] WASC 132.
[7] Midwarren Estates Pty Ltd v Retek & Stivic [1975] VR 757.
[8] Transfer of Land Act 1958 (Vic) s 89A.
[9] Transfer of Land Act 1958 (Vic) s 90(3).
[10] Yamine v Mazloum [2017] VSC 601 at paragraph 15.
[11] TL Rentals v Youth On Call [2018] VSC 105 at paragraph 29.
[12] Transfer of Land Act 1958 (Vic) s 118.
[13] RDN Developments Pty Ltd v Shtrambrandt & Ors [2011] VSC 130.
[14] KB Corporate Pty Ltd v Sayfe and anor [2017] VSC 623.