What is a caveat and what is its purpose?
A caveat can be thought of generally as notice on a certificate of title to anyone that they have an equitable or legal claim in that property, such as a lease, equitable mortgage or charge. If someone has a genuine “caveatable interest” in the property and identifies the right type of caveat, it can be a powerful tool for protecting your interests and maximizing your chances of being paid. We commonly see a charging provision in terms and conditions of trade, loan agreements, money used directly to improve or develop a property, guarantees or credit agreements, which allows a creditor to use property as security for payment and is recorded on a certificate of title as a caveat.
What is the effect of a caveat?
If a caveat is lodged validly and correctly, it informs everyone where you sit in the order of getting paid, if the property is sold and the sale proceeds are used to extinguish liabilities. It’s not essential to lodge a caveat and it’s commonly lodged once someone defaults under their obligations. Generally: “first in time, first in line”, which means the document giving a right to lodge a caveat signed first will have first priority in the order of payment. There are limited circumstances, however, where failing to lodge a caveat can be considered “disentitling conduct” and the caveator is disentitled from enforcing their interest.
Protecting your caveatable interest
To ensure that you are not disentitled from enforcing your interest, we recommend:
- Ensuring your terms and conditions or credit agreements give you a right to charge property as security;
- Lodging the caveat if you have a right to do so;
- Performing a search of the personal properties securities register to determine if there are any charges over personal property owned by the person granting you a caveatable interest;
- Performing a certificate of title search to determine whether there are earlier interest holders;
- Making enquiries about the value of the property and the debts over the property (such as a mortgage or other interests) to ensure there is sufficient equity to repay you, and having that in writing; and
- Including a declaration in your T&C’s, loan agreements, guarantees etc. to say the property is unencumbered other than as disclosed on the certificate of title.
Removing a caveat
A caveat may be withdrawn by the caveator at any time. It becomes a very powerful negotiation tool to agree to remove a caveat in exchange for the debt you are seeking to recover, especially if the property is in the process of being sold.
21 Days Lapsing Notice
A property owner can make an application to Landgate under the Transfer of Land Act 1893 (WA) (“TLA”) for a caveat to lapse if the caveator does not obtain a declaration from the Supreme Court of Western Australia that the caveator has a valid caveatable interest within 21 days. If the Registrar of Titles is not served with an order by the Supreme Court by this deadline, the caveat will be automatically removed. The declaration by the Supreme Court does not resolve the underlying dispute; it merely asserts that the caveator has a caveatable interest and that it can continue to be secured by a caveat.
If you require assistance with updating your terms and conditions of trade, loan agreements, credit agreements etc. to ensure that you have a charging provision over property, or you would like to lodge or remove a caveat, please contact our office to arrange a consultation with one of our experienced lawyers on 9375 3411.
About the Authors: This article was co-authored by Kristy-Lee Smith and Steven Brown. Kristy-Lee was admitted as lawyer in 2017 after graduating with Bachelor of Laws (Honours). Kristy-Lee joined the commercial law team at Lynn and Brown in June 2022 after practicing in tax law for almost 6 years at some of Perth’s top tier accounting and law firms, and in-house at Monadelphous. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.