Over many conversations I have had, it has becoming increasingly apparent that there are a lot of misconceptions as to what a caveat actually is and in particular, who has the lawful right to lodge a caveat over someone else's property.
Note that it is generally true to say that one cannot lodge a caveat over someone else’s legal title.
It is thought by some that merely by lodging a caveat over a property gives rise, by virtue of the fact of lodgement, to an interest recognisable by law in that property. This is untrue and it is critical to remember that a legally recognised and so valid interest in a property is required before it is permissible to lodge a caveat. The problem arises often because it is so easy to actually lodge one. All one needs to do is complete the relevant caveat document (and the exact varies a little from state to state but is generally consistent) and pay the small fee (usually around $70 to $100) and lodge with the relevant titles office.
So what actually is a caveat in a technical sense? It is a notice to the world that someone has an interest in a property and so that interest should be recognised before settlement can proceed and so title can pass. It is the fact of a presence of a caveat on title potentially preventing settlement proceeding on a property that leads to the potential legal and financial risk for a caveator.
If the legal owner requests a caveator to remove the caveat as they do not apparently have just cause for the interest alleged to support it and the caveator does not do so and settlement does not proceed unless and until the issue of the caveat is resolved, penalties and or interest can be charged to the owner/vendor. These penalties are by the fact that settlement is delayed and it is a technical breach of contract on the owner/vendor’s part to not settle on time. This fact can also other have knock on effects where the purchaser wants to move in and now they cannot and they perhaps do not have the available funds (as they are ‘locked up in’ the property) to arrange other accommodation and they have already sold their own property (and the sale proceeds of that property went towards the new purchase.
The owner may often therefore wish to pass on these penalty and interest amounts to the caveator. They broadly speaking assert this by letters often passing between the lawyers for the respective parties and or the service of notices pursuant to the relevant transfer of land acts in the relevant State. These letters and notices say in summary that if you do not remove the caveat within 30 days (for example) days an application to a court will be made for its removal. They go on to say that if the caveat is not now removed we will be seeking the costs of the removal application to a court which will then be required to be made.
A caveat it has been said must be ‘supported’ by an interest valid in law and that interest is often said as well, required to be a proprietary interest in a property. That is, the interest gives some ownership in the property rather than just an interest as a ‘bystander’ to the property. Another way of putting it is to say that the registered proprietor on title has the legal interest, and the caveator is alleging an equitable interest. An equitable interest is an interest based or fairness or justice or by way of ameliorating the strictness of the law by bringing into concepts such as what us fair or just.
So what practically speaking are some of the interests that the law recognises are or are not valid interests to support a caveat? I will start with the commonly asserted interest which does not give rise to a legal right to lodge a caveat. The mere fact that a registered proprietor owes the caveat money pursuant to just about any legal right, does not give rise to what is called a ‘caveatable interest.’ The most common valid interest is what is called sometimes a ‘purchaser’s caveat’ which often conveyancers and or solicitors lodge when acting for a purchaser of property. The caveat then shows the world that the purchaser has the interest to the extent of being a purchaser with settlement to occur in due course and gives the purchaser some level of protection if settlement didn’t proceed for example or something happened to the dwelling house on the land say by fire from the time of signing contracts until settlement then the purchaser’s interest is noted and provides some protection thereby.
Some other commonly recognised caveatable interests include a mortgagee, an interest under an option to purchase property, a tenant leaseholder, and someone who has a written agreement agreement where it was agreed prior that in the event of say a default of a legal obligation in respect of property a caveat could be lodged.
As always, and in particular due to the fact of the legal and financial risk from lodgement of a caveat when there may not be the legal right do so, professional advice should be sought.