WHAT IS A CAVEAT?

Put simply, a caveat signals an interest in land claimed by a person or entity other than the owner.

Practically speaking, a caveat can restrict how a property may be dealt with, including by restricting the sale or refinancing of a property.

As a result, a caveat is a powerful tool that can have significant legal and financial implications for both the caveator (the person or entity that has lodged the caveat) and the owner(s) of a property.

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WHEN CAN I LODGE A CAVEAT?

A caveat can be a powerful tool to secure a loan or your financial interest in a property. However, a misused or incorrectly lodged caveat can result in significant loss and damage to the caveator. This is due, in part, to s118 of the Transfer of Land Act 1958 (Vic), which provides that any person that lodges a caveat without reasonable cause shall be liable to compensate any person who suffers loss and damage as result of the caveat.

Unfortunately, we often see caveats misused by poorly advised caveators. This misuse results from the common misconception that a caveat can always be lodged against a property to secure a debt or obligation. However, this is not always the case.

This is because the purpose of a caveat is to signal an interest in the land in question. Not all commercial arrangements between a caveator or the owner of a property will give rise to a such an interest.

In a commercial setting, grounds that are commonly used to support a caveat include:

(1) A Constructive, Resulting or Implied Trust

A constructive, resulting or implied trust may arise where you have, for example, loaned money to another party for the purchase of land, payments towards a mortgage or for improvements to land. A constructive trust can also arise in cases of a breach of fiduciary duty.

This is also a common ground used to support caveats lodged in support of personal dealings, including where money has been loaned to a family member, relative or acquaintance to purchase or improve land.

Importantly, a constructive, result or implied trust can arise even where there is no written agreement between the parties.

(2) Pursuant to a charge contained in an agreement

As noted above, being owed money by the owner of a property does not necessarily entitle you to lodge a caveat over the property.

However, secured loan agreements or credit terms often contain ‘charging clauses’. A properly drafted charging clause can help to ensure that any money owed under an loan agreement or credit terms is capable of supporting a valid caveat.

Unfortunately, not all contractual clauses are created equal. As a result, whether or not a charging clause is sufficient to support a caveat will depend on the specific wording used in each case.

Whatever your grounds for a caveat, it is important to note that this can be a complex area of the law and it is critical that you obtain quality advice from experienced solicitors before you lodge a caveat.

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HOW CAN I REMOVE A CAVEAT?

A malicious or wrongfully lodged caveat can have significant and severe personal and financial implications. This is because a caveat can prevent you from selling, transferring or refinancing your property.

In order to support a caveat, a caveator must show that it holds an interest in the land. This is not often not easy to establish, and we regularly see caveats that have no legal basis and are simply being used as a bargaining chip in commercial or personal negotiations. In such circumstances, the caveat can be removed and the caveator may be liable for any loss and damage that you have suffered.

Generally, there are two mechanisms by which an unsupported or defective caveat can be removed:

(1) A lapsing notice

s89A of the Transfer of Land Act 1958 (Vic) provides that a person with interest in land affected by a caveat can make an application for the Registrar of Titles to issue a notice to the caveator that will cause the caveat to lapse within 30 days.

The only way for the caveator to prevent or postpone the lapsing of the caveat is to issue Court or VCAT proceedings to substantiate the interest claimed by the caveat.

Given the significant cost and risk of commencing Court or VCAT proceedings, a lapsing notice can be a very effective mechanism to remove a weak caveat.

(2) Court proceedings

s90(3) of the Transfer of Land Act 1958 (Vic) provides that a person who is adversely affected by any caveat may bring proceedings in a Court against the caveator for the removal of the caveat.

Whilst initiating Court proceedings is far costlier and riskier than issuing a lapsing notice, there are certain circumstances where ‘getting on the front foot’ and issuing proceedings can be advantageous, particularly for contentious caveats or caveats that need to be removed urgently.

Whilst these mechanisms are relatively clear and simple, there are a significant number of strategic considerations that affect how the removal of a caveat should be approached. It is therefore critical that you obtain experienced, commercially astute legal advice before your proceed. It is also critical that where an unsupported or defective caveat has been lodged against your property, you act without delay.

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