When someone lodges a caveat against your property, NSW Land Registry Services (NSW LRS) may refuse to register a transfer, mortgage, plan or other dealing that the caveat’s terms prohibit. A caveat does not necessarily prevent you from entering into a contract for sale. It may, however, prevent settlement or registration until one of four things happens: the caveat is withdrawn, it lapses, the court orders its removal, or the caveator consents to the dealing.
Three principal pathways may be available:
- obtaining the caveator’s voluntary withdrawal or consent;
- serving a lapsing notice under s 74J of the Real Property Act 1900 (NSW); or
- applying to the Supreme Court of NSW for an order under s 74MA.
Which one suits you will turn on three things: how much time you have before settlement or drawdown, how strong the caveator’s claim looks, and whether the caveator is willing to cooperate. Each pathway takes time to run, so the earlier you start, the more options you keep open.
What does a caveat do?
A caveat puts the world on notice that the caveator claims an estate or interest in the land. Its practical effect depends on what interest is claimed and which dealings it prohibits. Some caveats block only particular dealings, so reading the caveat itself is the first step in working out how much of a problem it is.
What is a caveatable interest?
A valid caveat must rest on an estate or interest in the land that a caveat can protect. A purchaser’s equitable interest under an enforceable contract for sale can qualify. An unregistered mortgage or charge over the land can also qualify, as can certain beneficial interests under a trust. Whether a particular interest is caveatable depends on the nature of the rights created by the relevant transaction or instrument. A discretionary beneficiary, for example, does not ordinarily hold a proprietary interest in specific trust property simply because the trustee could exercise its discretion in their favour.
A debt or other personal claim, without an interest in the land, will not ordinarily support a caveat. The caveator’s motive does not decide the matter either way. A caveat that genuinely protects an interest remains valid even if it also puts commercial pressure on the owner, so the question to ask is whether the caveator actually holds the interest claimed. Our article on caveatable interests covers this in more detail.
Option 1: Negotiated withdrawal or consent
A caveator can withdraw at any time by lodging a Withdrawal of Caveat (Form 08WX) with NSW LRS. Alternatively, the caveator can consent to a particular dealing going ahead while the caveat stays in place. Where agreement can be reached, for instance because the caveator accepts the caveat is unsupported or the underlying dispute has settled, this is ordinarily the quickest and least expensive outcome. It avoids both the statutory lapsing period and the cost of court proceedings.
If the withdrawal is part of a wider settlement, record it in a deed of release that releases the underlying claims, requires withdrawal of the existing caveat and restricts the caveator from lodging a fresh caveat on the released claims. The deed matters more than it might seem. Section 74O of the Real Property Act 1900 (NSW) stops the same caveator lodging a further caveat in three situations. The restriction applies only to a caveat for the same interest on the same facts. It applies where the earlier caveat lapsed. It also applies where the caveator withdrew the caveat after someone applied for a lapsing notice. Finally, it applies where the Supreme Court ordered the caveat’s removal under s 74MA. A purely voluntary withdrawal does not attract that restriction. A deed does not physically prevent a further lodgment either, but a caveator who relodges in breach of it risks urgent court orders, costs, damages and contractual remedies.
Option 2: Lapsing notice under s 74J
How it works
- You apply to NSW LRS for a lapsing notice under s 74J of the Real Property Act 1900 (NSW).
- NSW LRS prepares the notice and returns it to you to serve on the caveator.
- After serving it, you give NSW LRS a statutory declaration confirming service.
- From the date of service, the caveator has 21 days to obtain a Supreme Court order extending the caveat and to lodge that order with NSW LRS.
- If no order is lodged within that period, the caveat lapses by operation of law, and NSW LRS can record the lapse on the Register once its procedural and evidence requirements are met.
What the caveator must do within 21 days
To keep the caveat alive, the caveator must apply to the Supreme Court under s 74K and actually obtain and lodge an extension order before the 21 days run out. Starting proceedings without getting the order in time will not stop the caveat lapsing.
Supreme Court Practice Note SC Eq 8 also affects timing. It says a caveator should seek an extension from the duty judge at least five days before the notice expires. Exceptional circumstances can justify a later application. The statutory period remains 21 days. However, a caveator seeking an extension must have its application ready at least five days before the notice runs out.
When to use a lapsing notice
You can serve a lapsing notice whether the caveator’s claim looks unsupported or arguable. The notice does not test the claim. Instead, it shifts the burden to the caveator. The caveator must go to court and justify the caveat within the statutory period. You do not have to prove that the Court should remove the caveat. It works best where your settlement or finance deadline leaves room for the full process to run.
Practical tips
- Before applying, confirm you hold a current and accurate address for service on the caveator, since defective service can undermine the notice and cost you time.
- Your own address matters too, because the caveator may serve its court application on you at the address you give NSW LRS. In one reported case, the owner had moved from the address he nominated, and the Court dispensed with service and extended the caveat without hearing from him (Circuit Finance Australia Ltd v Bessounian [2006] NSWSC 1190). Keep that address current for as long as the notice is running.
- Plan backwards from your settlement, refinancing or drawdown date, allowing for NSW LRS to prepare the notice, for valid service, for the full 21 days to expire and for the lapse to be recorded. If the caveator commences proceedings and obtains an extension, the dispute may continue beyond that period, because the Court can extend a caveat until further order.
- Keep your evidence of service organised, because NSW LRS will not act on the notice without your statutory declaration of service.
Option 3: Supreme Court application under s 74MA
A direct application to the Supreme Court under s 74MA of the Real Property Act 1900 (NSW) may be more appropriate than a lapsing notice where:
- you need urgent relief and there is not enough time for the lapsing-notice process;
- the caveator has already obtained an extension that you want to challenge;
- the caveator cannot be located or served effectively; or
- the caveator’s claimed interest is disputed and you need the Court to decide whether the caveat should stay in place until that dispute is finally resolved.
Court proceedings are not automatically faster than a lapsing notice. How quickly the Court deals with the application depends on the urgency you can establish, the available evidence, service requirements, whether the caveator opposes it and the orders the Court makes.
The legal test applied by the Court
Whether the caveator is seeking an extension or you are seeking removal, the Court generally applies principles similar to those for interim injunctions. The leading authority is the Privy Council’s decision in Eng Mee Yong v Letchumanan [1980] AC 331.
First, the caveator must show a serious question to be tried that it holds the estate or interest claimed. On an extension application, the Act asks whether the caveator’s claim “may have substance”. The Court treats that as the same question. The Court then weighs the balance of convenience. It looks at the prejudice each side would suffer if the caveat stays or goes. It also considers whether damages would be an adequate remedy.
The caveator may fail to show a serious question, or the balance of convenience may favour removal. In either case, the Court may order the caveat’s withdrawal. As part of its discretion, the Court can attach conditions to that order. At this stage, the Court usually decides only whether the caveat should remain until the dispute reaches a final resolution. It does not decide who wins the dispute itself.
Undertakings and costs
Undertaking as to damages
A caveator seeking an interim extension will ordinarily have to give the usual undertaking as to damages. In doing so, the caveator submits in advance to any compensation order the Court later makes if it decides the extension should not have been granted and the undertaking should be enforced. To recover under it, you would need to establish recoverable loss caused by the continuation of the caveat.
Costs
The Court decides costs as a matter of discretion. Ordinarily, the unsuccessful party pays the successful party’s costs on the ordinary basis. The Court awards indemnity costs only in cases that justify them. The Court can depart from that position. In doing so, it considers the parties’ conduct and any offers of compromise. It also considers whether each party acted reasonably in bringing or defending the proceedings. The risk of a costs order is relevant to a caveator deciding whether to maintain a caveat. So is its liability under the undertaking.
Compensation under s 74P
Section 74P of the Real Property Act 1900 (NSW) may make a caveator liable to compensate a person who suffers pecuniary loss because the caveator:
- lodged a caveat without reasonable cause; or
- without reasonable cause, refused or failed to withdraw the caveat after being requested to do so.
To succeed, a claimant must prove the absence of reasonable cause, the relevant conduct, actual pecuniary loss and a causal link between the conduct and the loss. Recovery also depends on the ordinary rules on proof, causation and remoteness. Removal of the caveat does not, on its own, establish liability, and a s 74P claim will not get the caveat off your title any faster.
The section also applies to owners. A person who procures the lapsing of a caveat without reasonable cause can be liable to compensate the caveator. This applies where the caveator suffers loss as a result. You should not use a lapsing notice against a caveat you know is well founded.
Practical timing and settlement risks
While a caveat remains on title, you may face:
- a delayed settlement while the lapsing period or court process runs;
- a lost loan if the lender’s deadline passes before the caveat is dealt with;
- delay to a subdivision or development if the caveat prevents registration of a plan;
- extra interest, penalties or holding costs while the property is tied up; and
- strained relationships with a purchaser or financier whose own timelines slip.
A lapsing notice is often less expensive than commencing court proceedings and places the onus on the caveator to obtain an extension within the statutory period. A Supreme Court application may be the more appropriate route where urgent or tailored orders are required, although it is not automatically faster and may involve substantial costs. Where the caveator is willing to reach agreement, a negotiated withdrawal or consent may be the most efficient option of the three.
What to do next
Get legal advice before you serve a lapsing notice or file a Supreme Court application. The right pathway depends on the terms of the caveat, the apparent strength of the caveator’s claim, the time left before settlement or drawdown and whether the caveator is likely to contest removal. Starting down the wrong pathway can use up time you cannot recover.
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
Article Written by Seb Hain, PLT
