Caveats – and their limitations
The process of lodging a caveat is a relatively simple one, usually quick and cost effective and can also be done electronically.
Any person or entity which has a “caveatable interest” i.e a legal or equitable interest, in a property is able to lodge a caveat. It is a powerful, and practical mechanism to use, for example, in one of the following scenarios (not an exhaustive list):
where a purchaser has signed a contract for sale of land;
where a tenant has an unregistered lease;
where there is an option agreement to acquire property; or
where there is an equitable mortgage in relation to property and the mortgagee wishes to secure their interest.
It must be understood that Caveats have their limitations, for a number of reasons:
A Caveator must be careful to ensure they have a current caveatable interest in a property. In the case of Ta Lee Investment Pty Ltd v Antonios, the appellant had loaned funds to the developer. A provision of the loan agreement granted the appellant a caveatable interest over a property in the event of default. The developer defaulted, and the appellant subsequently registered a caveat. The NSW Court of Appeal ruled that the right to “lodge and maintain a caveat” did not give rise to an equitable interest or charge in the property, rendering the caveat as invalid.
It is important that the wording of a caveat is given proper thought, as a poorly drafted caveat may not be conducive to a caveatable interest. In the case Woodsman Pty Ltd v Jozic the NSW Supreme Court held the Caveat to be “incurably deficient” due to the nature of the wording, “the whole of the registered proprietor’s interest in the land”. The Court stated this “was not an adequate description of the claim…” and further, that “the nature of the claimed interest was uncertain on its face”.
Where there is a time lapse between the acquiring of an interest and lodging a caveat. LTDC Pty Ltd v Cashflow Finance Australia is a recent case involving a priority dispute between two lenders both with unregistered interests in land and where, for various reasons, the first lender did not lodge a caveat until after the second lender acquired its interest. The NSW Supreme Court ruled that the ‘second in time’ lender had the priority interest. The Court found that the second lender would not have reasonably known about the first lender’s interest. The Court stated “…defendant’s failure to lodge a caveat contributed to the assumption upon which the plaintiff proceeded.”
  NSWCA 24
  NSWSC 1311
  NSWSC 150