Info: Property Caveat

A purchaser of real estate, will acquire what is known as an "interest" in the property purchased. However, a purchaser will not be the legal owner of the property until their interest is registered with the Land Titles Office of Victoria. This means that there is a risk that someone else could register their own interest in the property before the purchaser registers theirs. By lodging a caveat a purchaser can prevent others from registering interests ahead of theirs.

What is a caveat?

The word caveat means beware, and the lodging of a caveat over a property is a way telling anyone who wants to deal with the property to be aware of the fact that someone else's interest already has priority. In other words, a caveat is a written warning to anyone who checks the Certificate of Title of the property that the person who lodged the caveat (known as the "caveator") has an interest in it. The Registrar of Titles cannot deal with the property without first notifying the caveator.

Who can lodge a caveat?
When a purchaser signs a contract to purchase real estate, the purchaser acquires what is known as a "caveatable interest". This means that the purchaser is entitled to register a caveat to protect that interest. Other people can also acquire a "caveatable interest", for example:

• Someone who has signed a contract to buy the same property. This often happens by mistake, where two estate agents sell the same property to different purchasers. The first to lodge a caveat will have priority as purchaser, while the other may only have a right to compensation for the inconvenience.
• A creditor who wants to prevent the vendor from disposing of the property. A creditor may have a written agreement with the vendor by which the creditor is permitted to lodge a caveat to secure a loan. Alternatively, the creditor may have a court order allowing for the lodging of a caveat.
• Other rights. There are numerous other rights that may give rise to a "caveatable interest".

Only a person who has a caveatable interest is entitled to lodge a caveat or to instruct their lawyer to lodge a caveat on their behalf.

It is best to have the caveat lodged by a lawyer so that advice can be obtained as to whether a caveatable interest actually exists, whether there are any contractual prohibitions on the lodging of a caveat, and whether further registrations to be made on the caveator's behalf may be affected (a carelessly lodged caveat could prevent a purchaser's own Transfer of Land from being registered or cause a lender to refuse to provide funds on settlement day).

When should a caveat be lodged?
A caveat should be lodged as soon as a caveatable interest is acquired (usually as soon as the purchaser's offer has been accepted by the vendor of the property).If a caveat has not been lodged immediately after the purchase, it should be lodged as soon as there is a danger that another party may attempt to register an interest in a property.

Sometimes a real estate contract will prohibit the lodging of a caveat, and so legal advice should be sought before the caveat is lodged.

What are the risks if a caveat is not lodged?

The risk in any particular case depends on the individual circumstances. Here are some examples of problems that could be dealt with by lodging a caveat:

• Two offers are received for the one property, and the vendor mistakenly accepts both. The purchaser who lodges a caveat first is likely to become the owner of the property, while the other may have to be satisfied with compensation for any loss suffered as a consequence of the mistake.
• A creditor of the vendor discovers that the property as been sold and lodges a caveat to prevent the purchaser from registering a Transfer of Land. This could have been prevented if the purchaser had lodged a caveat immediately after the sale.
• A creditor, unaware that any sale has taken place, lodges a caveat after settlement but before the purchaser's Transfer of Land has been lodged. This could have been prevented if the purchaser had lodged a caveat.
• Any situation where a purchaser obtains a home loan. Most lenders want to ensure that their mortgage is registered on title, and so the lender will collect the Certificate of Title and the Transfer of Land at settlement with the intention of lodging all of the documents at the Land Titles Office at the same time. However, some lenders can delay registration for months, leaving a window of opportunity for a person with a caveatable interest in the property to lodge a caveat first.
• Even where a purchaser is not relying on a home loan, and is having their lawyer attend to the lodging of the Transfer of Land, there is still a small window of time during which someone else could lodge a caveat in order to gain priority over the purchaser.

If a person with a competing caveatable interest lodges a caveat and gains priority ahead of a purchaser, the purchaser may incur considerable time and expense in ensuring that the caveator's interest in the property is dealt with and eventually disposed of.

The lodging of a caveat by a person with a competing caveatable interest could force a purchaser to delay settlement. This could have a flow-on affect if the purchaser's loan expires and the purchaser cannot obtain the finance to complete the purchase.