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One of the first things our clients will ask when they are owed money by someone is ‘Can I caveat their property?’ Unfortunately, there is a misconception that a debt automatically creates a caveatable interest in real property. Rather, the truth is that unless an agreement between the creditor and the debtor exists which permits the creditor to caveat the debtor’s property, the creditor cannot do so.

If you find caveats confusing, continue reading to learn more about caveats and what amounts to a caveatable interest.

What is a caveat?

A caveat is a notice which is registered against the title of real property to warn anyone who wants to deal with the property that someone else’s interest has priority (that person is known as the caveator). This means that one cannot deal with the property (including selling the property) without first notifying the caveator and potentially resolving the matter which gave rise to registration of the caveat.

A caveat cannot be registered against the property unless a caveatable interest exists.

A caveat may be either absolute or permissive. A permissive caveat is the most common as it allows there to be further dealings with the property but only with the permission of the caveator. An absolute caveat is more severe in that it prevents all dealings with the property until the caveat has been removed.

The effect of the caveat is that it will remain on the property until it is either withdrawn or removed.

What is a caveatable interest?

A caveatable interest can be either a legal or equitable interest.

The most common examples of caveatable interests are:

  • An interest to purchase a property under contract of sale. This interest refers to the period between signing a contract and settlement (the time which the legal transfer of the property takes place). A caveat ensures that the vendor will not on sell or otherwise mis-appropriately deal with the property during that period.
  • An interest under an equitable mortgage.
  • An interest as someone who has been provided a charge by the owner of the property. This normally occurs in situation where the owner receives goods or services on credit from a provider and the provider requires them to have written agreement permitting them to lodge a caveat on their client’s property in circumstances where they default on payment.
  • An interest under a lease.
  • An interest as an equitable owner of the property. An example of when this may occur is when only one party to a couple (married / de facto) is listed as a registered proprietor of the property but both parties have contributed financially and to the general maintenance and / or improvement to the property.
  • An interest under a life tenancy.
  • An interest under an easement or encumbrance.
  • A beneficiary under a unit or constructive trust.

The most common misconceptions where people think a caveatable interest exists when it in fact does not are:

  • Debts where there is no agreement between a creditor and a debtor which allows the creditor to charge the property.
  • A shareholder of a company which owns the property.
  • A beneficiary under a discretionary trust.
  • A builder or tradesman who has completed works on the property.

If you are looking at lodging a caveat, it is best that you have the caveat prepared by a lawyer and obtain advice as to whether or not a caveatable interest actually exists.

Also, if you are a credit provider or supply goods and / or services to your customers on credit, you should ensure you have an appropriate agreement in place which will allow you to secure your interest in payment of the credit, goods and / or services by way of a caveat in circumstances where they default on payment to you. This can be included as a clause in your general terms and conditions.

In order for such an agreement to be effective, it must explicitly state that you hold a charge over the property. Given the specific nature in which the wording must be provided to be satisfactory for the purposes of creating a caveatable interest, we strongly suggest having your agreement prepared by a lawyer.

Please do not hesitate to contact us at Clarke Hemmerling Lawyers on (08) 8333 2130 for more information and / or assistance.

This blog was written by Michelle Moore, Associate at Clarke Hemmerling Lawyers

This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you.  Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.