Caveats – what you need to know

In my property and commercial work, I am constantly faced with issues relating to caveats, from having to deal with caveats registered on my clients’ properties, to registering caveats over the property of third parties in order secure debts and protect my clients’ interests.

However, caveats are far from simple – their purpose and their operation seem to be a very misunderstood area – there are many dangers if proper advice isn’t taken.

What is a caveat?

A caveat is an instrument lodged by a Caveator (a person claiming to have a caveatable interest in land) registered on a Certificate of Title of a particular property.

It is essentially no more than a caution or warning to anyone dealing with the land, but there are different types. Depending on the type of caveat registered, a caveat will either prevent the registration of any other instrument (being any document, such as Transfer of Land or Mortgage etc), or allows the registration of any other instrument but only subject to the Caveator’s claim, or allows the registration of any other instrument but only after the Caveator has been given notice.

There are any many different scenarios where a caveat might be registered on a piece of land.

For example, an owner of land may register a caveat over their own home to prevent improper dealing on their land, or a tenant of a lease of the land may register a caveat to protect their tenancy, or someone who is entitled to receive a portion of the land’s sale proceeds may lodge a caveat to ensure they are paid out at settlement.

The most common use of caveats, however, could arguably be when someone has debt (commonly through a business), and the creditor lodges a caveat on the debtor’s family home as security for the debt. This is also the area where I commonly see problems arise, as many are misinformed about the types of interests that are “caveatable interest”, or interests which can support a caveat at law.

So what is a caveatable interest?

Just because someone owes you money, does not automatically mean you can register a caveat on their house and demand payment of your debt if they try to sell.

Only certain types of interests or claims are capable of supporting a caveat. The interest or claim has to be directly related to the land, or the owner of the land has to have given the Caveator express, written consent to register a caveat on their land. A simple monetary debt, then, is not an interest that can support a caveat, however if the landowner has agreed that they will pay you that debt from their sale of their home, then it may be a caveatable interest.

The most common types of caveatable interests include: –

• A purchaser under an agreement for the sale of land or a person entitled to part of the sale proceeds of the land;
• A person having the option to purchase land;
• An equitable mortgagee;
• A chargee;
• A lessee or tenant of the land;
• A beneficiary of an express trust, or a person claiming an interest pursuant to a constructive trust or a resulting trust.

Interestingly, the land authority (in Western Australia formerly known as the Titles Office and now called Landgate) will not assess the validity of a caveatable interest when a caveat is lodged.

Landgate will accept a caveat for registration so long as it is in the correct form and has the right supporting materials.  This means someone may register a caveat even when they do not have a valid caveatable interest, so long as their form is correct. This can, and does, lead to some serious consequences for the Caveator.

Dangers of registering a caveat without reasonable cause

When a caveat is registered on land, the landowner generally has the ability to apply to Landgate pursuant to section 138B of Transfer of Land Act 1893 (“the Act”) to remove the caveat. Landgate then provides a written notice to the Caveator requiring them to extend the operation of the caveat within twenty-one (21) days. If this is not done within the time period, the caveat automatically lapses after the 21 days have expired.

In order to extend the operation of a caveat, the Caveator must apply to the Supreme Court seeking an order that the caveat continue to operate until further order of the Court. To be successful, the Caveator must justify to the Court that they actually have a caveatable interest in the land in question. If the Court determines that the Caveator does not have any caveatable interest in the land, then the Court may determine that the caveat has been improperly entered without reasonable cause.

This can make the Caveator liable for compensation and costs of the landowner pursuant to section 140 of the Act. There are also risks involved for solicitors who assist with the improper entry of a caveat without reasonable cause, as costs orders can also be made against the solicitor personally.

In the recent case of Jimei Investment Holdings Pty Ltd v Chen, Honourable Justice Smith considered an appropriate costs order to be against the Caveator’s solicitors on an indemnity basis, rather than against the Caveator themselves. Her Honour’s reasons for the decision seem to suggest that the basis for this costs order centres around the original lodgement of the caveat, and perhaps the advice that was given (or not given) regarding the existence of a caveatable interest in the land.

If you have received notice that a caveat has been registered on your land, or if you are seeking to lodge a caveat or extend the operation of a caveat, contact us as soon as possible to discuss your options.