10 November 2016

Defective caveats are ineffective caveats to protect real estate interests

The article discusses the legislative requirements and then provides some comments on common mistakes made by caveators.
Australia Real Estate and Construction
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Failure to comply may mean that the caveat will be ineffective to prevent registrations of interests inconsistent with the caveat or could be grounds for its removal.

Caveats are important devices in property disputes to protect interests in land which cannot otherwise be registered on the Title Register, but if you do not comply with the strict legislative requirements relating to caveats your caveat will be ineffective to protect your interest. This is an important reminder for persons working in the real estate industry.

We discuss the legislative requirements and then provide some comments on common mistakes made by caveators.

What is a caveat?

A caveat acts like an injunction to prevent the Registrar of Titles from registering dealings on a piece of land which are prohibited by the caveat. It can also give notice to third parties searching the Titles Register of the caveator's interest in the land (eg. notice of an unregistered mortgage to a subsequent mortgagee).

To lodge a caveat you must follow strict legislative requirements. A failure to do so can be fatal - not only is this a ground for removal of the caveat, but the caveator can also be liable to pay the costs of the parties who sought its removal, together with compensation to anyone who has suffered loss or damage if the Court considers the caveat was lodged without reasonable cause.

Moreover, in most cases, if a caveat is set aside, the Court's permission will be required to lodge a subsequent caveat to protect the same or substantially the same interest.

What are the requirements for lodging a caveat?

This article deals with the Queensland requirements, but the requirements are similar in each State and Territory. To lodge a valid caveat, the caveator must:

  • have an interest which is capable of supporting a caveat (called a caveatable interest);
  • comply with the formal requirements for caveats; and
  • apply to Court within three months of lodging the caveat to protect the caveatable interest.

The nature of a caveatable interest

The most common caveatable interest is that of a "person claiming an interest in a lot". It is limited only to interests (legal or equitable) in the land over which the caveat is lodged, and does not extend to personal interests or purely contractual interests.

Some common caveatable interests include the interests of:

  • purchasers under an unconditional sale contract;
  • option-holders with options to purchase the land in question;
  • mortgagees or chargees; and
  • holders of rights to unregistered easements or profits à prendre.

An example of a non-caveatable interest is that of a partner in land owned by the partnership (ie. the partner is not entitled to any particular part of the land but merely his or her proportionate share of the proceeds of the land).

The registered owner can also, in limited circumstances, lodge a caveat to protect their title from particular dealings or kind of dealings. A common example is to protect their title from a transfer of the land by a party acting fraudulently.

Other caveatable interests include interests in land which are the subject of Australian court orders (eg. an order to transfer an interest in land to a person or an order restraining the registered owner from dealing in their land).

Formal requirements for lodging a caveat

In Queensland, the Land Title Act 1994 (Qld) requires a caveat to specify:

  • the name of the caveator;
  • an address for service of documents on the caveator;
  • the interest claimed and the grounds for claiming that interest (as referred to above);
  • the dealing or types of dealings to be restricted by the caveat;
  • if the caveat relates to part of the land only, a description of that part; and
  • unless the Title Registrar permits otherwise, the name and address of the registered owner and anyone else having a right to deal with the land (eg. a mortgagee).

Similar requirements exist in the other States and Territories. Failure to comply may mean that the caveat will be ineffective to prevent registrations of interests inconsistent with the caveat or could be grounds for its removal. There are only limited circumstances in which a Court may rectify a defective caveat.

Applying to court to protect a caveatable interest

A caveat will usually lapse unless the caveator commences Court proceedings to protect their caveatable interest within three months of lodgement.

In Queensland, the three-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 does not do so and notify the Registrar of Titles that they have done so within 14 days of service of the notice, the caveat will lapse. Similar notices are generally available in the other States and Territories, but the time periods vary.

However, the requirement to commence proceedings does not apply to caveats lodged by the registered owner or by caveators who have the registered owner's permission to lodge a caveat.

How do you remove a caveat?

Caveats which have not or cannot lapse can only be removed by applying to the Court for an order removing the caveat, or, in limited circumstances, by requesting the Titles Registrar to cancel the caveat.

An application to remove a caveat places the burden on the caveator to show cause why the caveat should not be removed. The same principles as those applicable to interlocutory injunctions apply - the caveat will only be maintained if:

  • the caveator's claim raises a serious question to be tried;
  • the balance of convenience requires the caveat to remain; and
  • the caveator gives an undertaking as to damages.

Checklist for lodging a caveat

The most common mistakes made by caveators which should always be checked are:

  • failing to ensure that stamp duty has been paid in respect of the underlying interest sought to be protected;
  • lodging a caveat over the whole of the land where the cavetable interest only relates to part of the land;
  • failing to be aware of the different time limits for caveats lapsing between the States and Territories;
  • identifying the wrong caveator (e.g. where there is the sale of a business and premises under separate contracts, only the buyer of the premises can lodge a caveat);
  • lodging a caveat where the caveator has contractually bound itself not to lodge a caveat (which is the case with many commercial leases);
  • where the title or interest in the land is jointly acquired and only one party lodges the caveat; and
  • failing to prepare timely and appropriate supporting affidavit material for proceedings to protect the caveat or to resist an application for removal.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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