A Caveat is a dealing registered on the title to real property by which protection can be granted for an unregistered interest in the real property, such as a loan.
The most common form of Caveat to be registered on real property is that which prevents a dealing being registered on the land after the registration of the Caveat.
The real property is ‘locked’ or ‘frozen’ until such time as the Caveat is removed. This prevents the owner of the real property transferring ownership of the property and also prevents the registration of other parties registering other dealings such as a Mortgage or a Lease.
In order to lodge a Caveat the person lodging the Caveat (“the Caveator”) needs to show that they have a caveatable interest in the property. This requires the Caveator to have an interest in the real property, for example as the purchaser under an exchanged Contract for Sale of Land. A personal, contractual or statutory right may not be enough to provide a caveatable interest in real property. It has been held that a spouse’s claim to property in family law proceedings is not sufficient to show a caveatable interest in real property.
Section 74F (2) of the Real Property Act 1900 (NSW) allows for owner of real property to lodge a Caveat over their own property. Thereby providing the owner with a caveatable interest in situations where the Certificate of Title document has been lost or stolen or for any other reasons, the owner fears an improper dealing could be lodged on the title to the real property.
The Supreme Court has held (Composite Buyers Ltd v Soong (1995) 38 NSWLR 286 at 288 that “any equitable interest in land is sufficient to support a Caveat, even if the Caveator does not have a registerable instrument”. This means that that if there is a document creating a caveatable interest, this document does not have to be in a format to allow registration on the title to the real property. However, this case does confirm the requirement that if there is such a document, that it create a caveatable interest.
Once registered a Caveat can be removed from the title to the real property by three ways.
- The first way is for the Caveator to register a Withdrawal of Caveat. When registered this dealing will remove the Caveat from the title to the real property.
- The second way is for the Caveat to lapse. This process starts when a dealing is lodged for registration on the title to the real property on which the Caveat is registered. The Department of Lands will then serve a notice on the Caveator of the intended registration. The Caveator has 21 days from the date of the notice to either allow the registration of the intended dealing or provide a reason as to why the dealing should not be registered. If this response is not received from the Caveator within the prescribed time, then the Caveat will lapse and will be removed from the title to the real property.
- The third way is by an order of the Supreme Court. This can result either from an action brought by the Caveator or by the owner of the real property. Either way, it is up the Caveator to show and prove to the Court that they have a caveatable interest in the property.
Caveats can be a tricky area of law and there are penalties imposed by Section 74 of the Real Property Act 1900 (NSW) for Caveats lodged ‘without reasonable cause’. This is a brief summary only of a complex area of law. Please feel to contact our office to discuss this further.