LEGAL
CAVEAT, Yes or N0?
WORDS: Brendan Nyst - Nyst Legal PHOTOGRAPHY Supplied
You need to ensure that you have a “caveatable interest” in a property before lodging a caveat, otherwise there could be severe consequences.
- Someone owes me money. Can I put a caveat on their home?
- A caveat is essentially a legal freeze placed over a property in the titles registry, to inform the public that someone claims a lawful interest in that property, and to stop the owner dealing with the property until the claim is determined. The practical effect of a caveat is that it will prevent any transaction – to mortgage, encumber, sell or transfer the property – going ahead, until the caveat is removed, either by agreement or by a court order. For creditors, it can be a particularly useful weapon to extract their pound of flesh – upon the ultimate sale of the property if not earlier – rather than simply crossing their fingers and hoping.
I regularly have clients contact me, fed up with dealing with a recalcitrant debtor, asking me to slap a caveat on their home, or on some other real estate they own. However, there seems to be a common misconception in the community that where someone is owed money, or where someone is seeking compensation against another, they are automatically entitled to caveat that person’s real estate, or put a security hold over their personal chattels, to prevent them selling such assets and hiding or dissipating the proceeds. Unfortunately, it’s not that straight forward. To lodge a caveat over someone’s property, it is not enough just to be owed money by them. You can only lodge a caveat on a property where you are asserting some legal or equitable interest in the property concerned. For example, if you are a tenant who has a right of first refusal in respect of any sale of the property, or you are the beneficial owner of the property by virtue of having contributed money to its purchase, you will have what is called a caveatable interest in the property, which empowers you to put a hold on all further transactions on it until your interest has been extinguished.
Alternatively, you may have a contractual right to caveat the property by virtue of the property owner having contractually agreed with you to “charge” the property in your favour. But, however it may arise, you must have a legally recognised caveatable interest before you may lawfully lodge a caveat over the property.
Obviously, then, it is imperative that, before lodging a caveat over any property, you take legal advice as to whether you have a caveatable interest because the consequences of lodging an invalid caveat can be severe. If, by impermissibly lodging a caveat, you prevent a sale or some other transaction on the property from going ahead, you may well be held liable for any damages suffered by the owner as a result.
That being said, I would strongly recommend to anyone intending to lend money to a third party under contract, that they consider including in the contract specific provisions to allow caveats to be lodged over specified real property to secure repayment of the advance, as that will provide a high level of fall-back security in case the debtor goes bad.
Brendan Nyst, Dispute Resolution & Litigation, Wills & Estates, Defamation, Nyst Legal
