A reoccurring issue that I deal with relates to people or businesses that are looking to register a caveat against the Certificate of Title (“Title”) to land. A caveat when registered against the Title to the land will generally prevent ownership of the land from being transferred into another person’s or entities name. More often than not, such people are looking to register the caveat against the Title because the registered owner of the property owes them money and they are trying to stop the land from being sold so as to secure payment of the debt owing to them.
Unfortunately, a caveat cannot be registered against a Title simply because the registered owner of the land owes money to the person or entity seeking to register the caveat or for some other reason that person wishes to prevent the transfer of ownership of the land into the name of a third party.
In order to be entitled at law to register a caveat against the Title of land owned by another person or entity you must have what is referred to as a ‘caveatable interest’ in the land.
So, What Exactly is a Caveat?
As I mentioned above, a caveat is a document registered on a Title to land, that prevents dealings (such as buying, selling or mortgaging the land) with the land. A person who registers a caveat is known as a “caveator”. The caveat itself does not create an interest in the land or give the caveator the power to sell the land. Rather what it does do is to act as a:
- warning that the caveator has some form of interest in the land; and
- an injunction to prevent any dealings in relation to the land.
Importantly, in Western Australia a person who registers a caveat against a Title to land without having a valid a ‘caveatable’ interest in the land becomes liable to pay compensation to any person who suffers financial loss as a consequence of the caveat being registered against the Title to that land. Such compensation may amount in some cases to many thousands of dollars, such as where a sale of land is lost because the caveat is registered against the Title unlawfully.
Therefore, whilst the actual process of registering a caveat against the Title to land is a relatively straight forward one, the consequences of doing so if you do not have a clear caveatable interest in that land can be very significant and sometimes financially fatal.
When do I have a caveatable interest?
There are different kinds of interest in land that will satisfy the requirements of a “caveatable interest’ in the land. The following kinds of interest in land have been accepted by the Courts as caveatable interests:
- as purchaser under a contract to acquire the land;
- as grantee of an option to acquire the land;
- as tenant of the land;
- as the holder of an equitable mortgage in relation to the land; and
- as chargee of the land;
A caveatable interest in land can arise in several different ways including by agreement. The latter is very important in commercial transactions because it is possible in many circumstances for parties to a contract to agree to the creation of a caveatable interest in one or more nominated pieces of land to secure a debt thereby providing the creditor or potential creditor with the ability to secure debt against tat land by way of a valid caveat
Is there More Than One Kind of Caveat?
There are different kinds of caveats and so it is important that if you are intending to register a caveat against the Title to land that you also ensure that the correct kind of caveat is lodged in the circumstances. There are 3 kinds of caveats that can be registered against the Title to land in Western Australia. These are caveats that prevent dealings relating to the land:
- absolutely (absolute caveat);
- until after notice is given to the caveator that the caveat has been registered against the Title to the land (notice caveat); and
- unless the caveat registered is expressed to be subject to the claim of the caveator (subject to claim caveat).
Each of these kinds of caveats have different characteristics and benefits depending on the situation at hand. Care needs to be taken in selecting the most approprate caveat for the situation at hand.
Registering a caveat against a Title to land can often provide a swift and cost effective way of securing an existing or anticipated future debt. However, unless there is a valid caveatable interest in the land and the correct kind of caveat is selected the exercise can quickly turn into a financial disaster. If the validity of the caveat is challenged then the caveator must either withdraw the Caveat voluntarily (thereby losing the security for the debt) or take a potentially significant financial risk in maintaining the caveat registered against the Title to the land and hope that he/she/it is found to have a valid caveatable interest in the land in question.
It is highly recommended that competent legal advice be obtained before proceeding to register or attempt to register a caveat against the Title to land to ensure that a valid caveatable interest exists and that the correct kind of caveat is selected to register against the Title to the land. It is also highly recommended that competent legal advice be obtained before entering into any significant commercial transactions to ensure that either:
- you are aware of, and agree to, the creation of a caveatable interest in a Title to land registered in your name or one of your business entities; or
- a valid caveatable interest is in fact created in Title to land if as a creditor or potential creditor you wish to secure debt against Title to land.