A caveat provides a method for interest holders in land to endorse their interests on a register or certificate of title without conferring on them any ownership in that land. A common example is when a party claiming a right in an easement or as an unregistered mortgagee, places a caveat on the title.
Why are caveats used?
A caveat is used to safeguard particular interests in land. Once a caveat is lodged, title dealings in relation to the property are restricted, unless the prior consent of the caveator has been provided or the caveator has been provided with the opportunity to establish their claim.
What is a caveat interest?
Specific state legislation stipulates that ‘any person claiming any estate or interest in land’ may lodge a caveat.
The following lists some interests in land that justify lodging a caveat:
When should a purchaser lodge a caveat?
A purchaser’s solicitor should lodge a caveat between the time of execution of a contract of sale and settlement. While it is not always necessary for a purchaser to lodge a caveat, it is essential when a terms contract is entered into. This is where a purchaser obtains possession of the property and will make several payments before settling on the property. It sometimes involves vendor financing where the purchase balance is due over a number of years. In all other circumstances, a caveat will ensure that a purchaser is notified of any dealing affecting the land, prior to taking possession as the registered proprietor.
What happens if a purchaser does not lodge a caveat?
By lodging a caveat, a purchaser is provided absolute priority over any third party lodging a subsequent document with the registrar. This means that should a vendor attempt to sell a piece of land to a third party after they have contracted to sell it to a first party, the latter will be able to rely on their contractual rights and are able to claim damages.
However, common law also protects the interests of innocent third parties. An unsuspecting, bona fide, third party purchaser may be entitled to settle on the property if they had no knowledge of the prior sale.
What if the registered proprietor owes money to a third party?
If the registered proprietor owes money to a third party, the third party would need to draft a ‘charging clause’ into a contract to ensure sufficient interest to be able to lodge a justifiable caveat.
Purchasers intending to build on their property should be aware that builders often include this type of charging clause in building contracts in order to secure payment for their services.