Do I have a caveatable interest? 


A caveat (derived from the Latin word for ‘beware’) is essentially a warning or caution that can be registered on the Certificate of Title to a property to prevent any further dealings with that property. Caveats are used by persons with an unregistered interest to prevent further dealings with the land until that person secures their interest.


To lodge a caveat on a property you must have an interest in the land.  It is not sufficient to lodge a caveat on a property to seek the recovery of a debt if the debt is unconnected with the land.


Below we will explore some scenarios where a caveatable interest may arise:


Scenario one - the charging clause


Sandra is the sole director of a finance company Sandra Pty Ltd.  Sandra Pty Ltd provides loans to start-up businesses for the purpose of financing new assets and business ventures. Benjamin has just started up a new company, Benjamin and Co Pty Ltd. 


As Benjamin requires additional capital to finance his start-up business, Benjamin enters into a loan agreement with Sandra Pty Ltd.  The loan agreement includes a charging clause that expressly charges any property of Benjamin with the performance of his obligations (to repay the loan) under the loan agreement.  The charging clause provides that any legal or beneficial interest in assets owned by Benjamin are charged in favour of Sandra Pty Ltd. 

Benjamin fails to meet the repayments of the loan, and does not respond to the letter of demand provided by Sandra Pty Ltd


Does Sandra Pty Ltd have a caveatable interest?


Yes – Sandra Pty Ltd has a caveatable interest.  The charging clause included in the loan agreement provides Sandra Pty Ltd with the status of a secured creditor or equitable mortgagee by providing a security over the property for the debt owed to her. 


The caveat will prevent Benjamin from selling or further encumbering the property while the caveat is in place.

 

Scenario two - the property settlement

 

James and Paula have been in a defacto relationship for 7 years.  Paula purchased an apartment 6 months before she entered into a relationship with James.  After 3 months, James moved into Paula’s property with her.  James and Paula contributed equally to the mortgage repayments, and general upkeep of the residence. 


James and Paula’s relationship has now broken down and James has moved in with his parents.  James is worried that Paula may sell the property.


Does James have a caveatable interest?


Yes- James has a caveatable interest in the property.  As James is not registered on the property, Paula can sell or refinance the property without James’ consent.  As James has contributed to the property financially, he has a caveatable interest in the property. 


If a caveat is registered on the property, Paula will not be able to sell the property the caveat has been withdrawn.  James may agree to withdraw the caveat as part of the property settlement


Scenario three – the property developer


Huan purchased a property near the beach valued at $600,000 with an intention to develop the property and sell it with the view of making a profit.  Huan did not have enough funds to purchase the property so he approached Jason and asked to borrow $200,000. 


A verbal agreement was entered into between Huan and Jason, that Jason would provide $200,000 to Huan to purchase the property, and Huan would share 40 per cent of the profit upon sale of the property.  Huan did not redevelop the property.  Jason believes that Huan has wrongfully used the money that he lent him and would like his money back.


Does Jason have a caveatable interest?


No- Jason does not have a caveatable interest.  An agreement to share in the profits on resale of land, does not in itself establish a caveatable interest in the property.  A loan in the absence of an intention to give the caveator security over the land does not confer on the caveator an interest sufficient to support a caveat (Simons v David Benge Motors Pty Ltd [1974] VR 585). 


If Jason had provided the money to Huan as a loan with the intention of establishing a security, it may give rise to a caveatable interest in the property.


As you will see from the above examples, a caveat can provide you with temporary protection of your interest in land by preventing any further dealings to occur with respect to that land.  It is not always clear when you may have a caveatable interest.  If a caveator is found to have wrongfully lodged a caveat, they will be liable to compensate the person suffering pecuniary loss. 


It is therefore critical to obtain legal advice if you suspect you may have an unregistered interest in land.


If you would like to know more about caveats and whether you may have a caveatable interest please contact one of our friendly staff at Bambrick Legal today.

 

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