Protecting Your Interest with Caveats
Traditionally, A Caveat is a charge to freeze or stop any further transactions or dealings with the Property and its Title, at the Land Titles Office, as the Caveator (Person lodged the Caveat) has a claim on the property/title or money relating to the property, which is awaiting to be resolved, either mediation or litigation in court. For a hypothetical example, Sally is one of five siblings in her family. The family home in Fairfield, in Sydney’s multicultural south west, has been the same family home, for over 50 years, since her parents migrated to Australia. Her elderly mother died a few years ago. Her elderly, who argued with everyone, died last year in 2019. The family home’s title is in both her late mother’s and recent late family’s name, as joint tenants. They had a joint will together, leaving everything equally to the five siblings. The elderly father, when he was alive, has a temper, that made him tick from time to time, and fight with all the family. Prior to the elderly father died, he did a separate will for himself and left 100^% everything to his favourite son, leaving nothing to the other four siblings, including Sally.
Sally, under the Caveat provisions in the Conveyancing Act legislation as amended and the state’s land title office, has a legal right to lodge a Caveat on the family home’s title, until, such time, the family’s will probate dispute is heard in court. The purpose of the Caveat, is to warn the land titles office, to freeze and stop any transfer or dealings to be registered, until such time, the matter is resolved with court orders. At first instance, this is what Caveats are for, to freeze or stop any transfer or dealings to be registered with the property’s title, until the matter is heard and resolved in court. A second hypothetical example, is a builder done extensions and renovations to the house, in which the property owners have not made any final payment, leaving a heavy balance owing in arrears. The builder also has a right to lodge a Caveat, for the final balance of payment to be heard and resolved in court.
A third hypothetical example, is a family member, lending money to other family members, to help them buy their home a few years back, who have not paid back the money, as promised. The family member who lent them money, not paid back, can also lodge a Caveat, for the money owed, to be heard and resolved in court. There is a number of hypothetical examples, whereby Caveats can be lodged, where there is a monetary interest related to the defendant and the property. A Caveat under the state’s Conveyancing Act legislation as amended, must show a direct financial interest in the defendant, linked to the property. If the defendant has a debt with you (such as money for a car purchase) and it is not directly linked or related to the property with title, then you do not have legal grounds to lodge Caveat. The dispute/financial interest must directly be linked and related to the property in title. Once resolved, or a Court Order is obtained, then a Withdraw of Caveat document with the prescribed fee, can be lodged to remove the Caveat.
Lending money to a person with property, allowing a Caveat in place for security, is only secured, if there is no existing or subsequent mortgage in place, on the title. Known as Caveat finance, available with lower third and fourth tier lenders, have a financial interest on the title, but in the pecking order, on sale, or forced sale, mortgagees comes first in settlement payouts, before any of the Caveat finance or Caveators get paid out.
For example, Billy has a fancy big house in Turramurra, in Sydney’s upper north shore. He spends up big to live up a cushy lifestyle. He already has a mortgage with Westpac, with second mortgage with Sunrise Finance and two Caveat finance arrangements. It gets out, Billy has a gambling problem, in then Sunrise Finance, serves him notice, they will foreclose, unless he gets up to date on his mortgage repayments, now missing a second one. He fails to bring his mortgage repayments up to date with Sunrise Finance, who now foreclose on him, with a mortgagee sale and auction of his Turramurra home. In regards to settlement/completion, Westpac as the first mortgagee is paid out first, then Sunrise Finance, with any of the funds left over, then goes to the first caveator/caveat finance, follow by the second caveator/caveat finance. In this instance, the sale proceeds with the home in mortgagee in possession had enough to cover Westpac and Sunrise Finance. It only covered about two thirds of the money owing to the first caveator/caveat finance and hardly covered the money owing to the second second caveator/caveat finance, In this instance, Billy now faces bankruptcy, he must find funds or sell person assets (his BMW car, boat, jewellery, shares etc), to avoid the first caveator/caveat finance and the second caveator/caveat finance forcing him into personal administration/receivership, facing court action with bankruptcy, to recover the money, that Billy owe’s.
What happens if there is a old 20 to 30 year old Caveat still on the property’s title, that you as a family member, know too well, that dispute has been resolved, with money paid out years ago ?
For these type of situation, in the state’s land title office, you can prepare and submit with the prescribed fee, a lapsing notice, that requires you, as the applicant, to provide notice to the original Caveator, that the Caveat will be removed in their absence, after so many days’ notice. In New South Wales, notice to the original Caveator, must be 60 days and sent via registered post, asking either to be signed on receiving, or returned if the Caveator no long at that address. If the original Caveator does not response within the 60 days, or the lapsing notice if returned to the application, then after 60 days lapse, the land titles office, removes the Caveat, as lapsed.
Lapsing Notices can be challenged in Court, which the court can decide if the Caveator requires more time, or if the lapsing notice by the Vendor should be considered, based on who has the greater needs and who can best perform. This was aired out in the First Ave Pty Ltd v Aquamore Credit Equity Pty Ltd case [References 14/069 and 14/070 – See References & Bibliography, end of this book]. Whereby the Purchaser lodged a Caveat to protect their interest prior to settlement/completion, but the vendor then lodged a lapsing notice, as they ran out of time, waiting for the purchaser in confidence, in when they can settlement/completion, when they have potential buyers, offering more money. The court judges heard both parties, with the claims and arguments. The court after considerations, then ruled in favour of the defendant/vendor. Although the plaintiff/purchaser had a valid application for a Caveat, needing more time to prepare for completion/settlement. The defendant/vendor has a better argument/claims, as the plaintiff/purchaser could not give a confident time frame from settlement/completion, in which the defendant/vendor requires the lapsing notice to be granted, to speak to other potential purchasers, offering them a better price. So, you can see the consequences of this case, and what is going through the judges ‘minds.
Talking about a purchaser’s protection Caveat’, these days in the modern world, apart from the General Caveat, there now different types of Caveats –
Purchaser Protection Caveat – to protect the purchaser’s interest in the property, they are purchasing, prior to settlement/completion. This came about in the case of Black V Garnock [Reference 14/071 – See References & Bibliography, end of this book].. What happened in this case, the purchaser paid the money out at settlement, but the title from the discharging mortgagee went to another party, during that time, leaving the purchasers with their incoming mortgagee, in title. The court surprisingly ruled against the purchasers, saying, their conveyancer/solicitor knew there was problems/issues and failed to lodge a Caveat to protect the interest of the purchaser.
In Off the Plan Contacts, there are special conditions, prohibiting purchaser Caveats, to avoid risks with the vendor developer ‘mortgagee/s. These days to overcome this, is for conveyancer/solicitor acting for their purchaser clients, on instructions, is to lodge a priority notice with the land titles office, via PEXA. This is done as soon as the new title comes through in registration (by the land titles office) for the new property Lot, with the Off the Plan Contract.
Self-Managed Superannuation Fund (SMSF) Protect Caveats – To protect the interests of the trust, with the beneficiaries, relating to the Superannuation Act legislation, as amended, as the property’s title is the name of the trustees, rather than the beneficiaries. This is in order to stop a potential litigant who is suing the trustees individually, to obtain the property in civil court, that is protected under the Caveat, in notice of the property held in trust, SMSF, under the Superannuation Act legislation, as amended.
Tenant Protected Caveat – To protect the interests of a Tenant, especially when the Landlord forgets or another reason not to registered the lease, when it is compulsory for leases threes years or more in term, to be registered on title. These are usually done by national based tenants organisations, such as Defence Housing Australian (who provide housing for defence personnel), Quest Apartments Australia (who provide residential apartment style hotel accommodation, with their franchise agreements) and retail operators, such as KFC or hungry Jacks (who provide fast food services, to customers, out of the rented outlets).
Sub-tenant or Franchisee Protection Caveat – to protect a business operator, going into a franchise agreement, with the tenant, but may only be the sub-tenant or Licensed Occupier, for the rented outlet (for example, many retail franchise chains).