What Are The Risks When Lodging a Caveat on a Property?

It is a common misconception that any creditor can caveat a debtor’s property to secure the repayment of a debt.

I’ve heard it countless times, from clients and lawyers themselves; “John owes me money, he owns a house, I will just caveat his home, that will make him pay”.

It is a common misconception that any creditor can caveat a debtor’s property to secure the repayment of a debt.  This results in many creditors exposing themselves to considerable risks in cost penalties because they have registered a caveat without necessarily having a caveatable interest.

A caveat is merely a notice of claim which may or may not be a valid one.  The validity of the claim must be determined at some stage.  The purpose of the caveat is to warn the registered owner, and all people who might deal on the faith of the Certificate of Title, that the caveator claims an interest which is not disclosed on the title.

Before you caveat someone’s property you must have a direct interest in that property, in law or in equity.  It is not always easy to determine whether you have a direct interest in a property by reason of a debt or agreement.  It is important to seek competent legal advice in any case where you are considering lodging a caveat against someone’s property.

Consequences of lodging a caveat where no “interest” exists

A caveat remains effective until it is withdrawn, removed or otherwise extinguished.  So long as a caveat remains in force, the Land Titles Office must not register any dealing with the land.  This means that a caveat lodged without merit may result in the caveator being liable to pay compensation to any person who suffers a loss as a consequence of the caveat.

There are two main procedures to remove a caveat and in each case a caveator must be prepared to incur considerable expense to prove their interest in the Property if they do not want the caveat to be removed.  They are:

1. Removal by Application to the Registrar General

2. Removal by Order of the Supreme Court

In both instances, the caveator will be obliged to commence Court proceedings or defend proceedings to prove their caveatable interest.  The costs of these Court proceedings will usually follow the event, which effectively means that if you are unsuccessful in proving a caveatable interest the costs will be claimed from you.  This has the potential to amount to liability to pay costs in the tens of thousands of dollars.

Even if you have a caveatable interest, it is also important to understand that in most cases, you may only ever caveat a property for that particular interest once.  If that caveat is removed as a result of a caveators failure to prove their interest, they have no further opportunity to caveat the property for the same interest.  It is for this reason also that it is important to seek competent legal advice before lodging a caveat, to ensure that you are prepared to protect your caveatable interest by Court proceedings.

For advice about caveats or any other property or business matter contact your nearest TGB office.