What to do if someone lodges a caveat over the property you are selling?

DSL Law recently acted for a seller.  A few weeks before settlement we received notification that a caveat was lodged on title.  Our client faced a very real risk that they would breach the terms of the contract and face significant financial penalties and liability.  DSL Law took swift and strategic action to have the caveat removed to ensure settlement. 

What is a Caveat?

Caveats are registerable against the title to land and act as an injunction which prevents the Registrar of Titles from registering any other legal document, such as a transfer, lease, easement or mortgage on the title of that particular property.

What does a caveat mean?

Caveats are essentially a ‘red flag’. They act as a warning to potential buyers of your property that a third party (usually the person who has lodged the caveat, the caveator) believes they have a right or interest in the property.

Once a caveat has been lodged against the title of the property you are selling, as the legal owner of the property, you will be prevented from doing a range of things, including:

• Transferring the property to another person;
• Selling the property;
• Providing “unencumbered title” which is a requirement for every conveyance; and
• Further registering other instruments against the property such as a loan or mortgage.

In short, a caveat can cause significant delays in the settlement of your property as purchasers will be highly unlikely or unwilling to complete settlement until the caveat has been removed. More importantly, as a seller you will be in breach of your contractual obligations – your buyer will have contractual rights against you including termination and a claim for compensation.

What to do if a caveat is lodged against your property?

Withdrawal

One way to ensure a caveat is removed from the title is for the caveator to lodge a Withdrawal of Caveat. This can be achieved through negotiating a settlement with the caveator. Aside from waiting for the caveat to lapse on its own, which is discussed below, this is usually the quickest and most cost-effective way to remove the caveat from your property and allow settlement to occur. However, it can only really happen when you have a willing caveator and, of course, time before your settlement.

Lapse

In Queensland, a caveat will automatically lapse (i.e. be removed from the title) unless the caveator commences Court proceedings, in relation to their caveatable interest, within three months from the date of the lodgment of the caveat.

This period can be shortened through the service of a notice pursuant to section 126(2)(a) of the Land Titles Act 1994 (Qld). The caveat will lapse 14 days after the legal owner serves notice on the caveator, unless court proceedings are commenced during this period.

Summary

As a seller, the potential ramifications of a caveat are real and serious.  Therefore, it is imperative that your legal team work quickly and effectively to remove the caveat and protect your rights.