A caveat can stop the settlement of the sale of your property. But how can you remove a caveat and allow settlement to proceed?

This article examines what a caveat is, how a caveat can be removed and a case study showing how the Supreme Court of NSW will decide if it should order the removal of a caveat.

What is a caveat?

A caveat is a type of statutory injunction that prevents the registration of dealings and plans on a property title. It is filed with NSW Land Registry Services (LRS). It acts as a warning to potential buyers, lenders or anyone else who might have an interest in the property, to beware that there is a competing claim on the property. A caveat can be filed by anyone who has a legal or equitable interest in the property, such as a spouse, a creditor, a potential buyer or the registered proprietor of the property.

How to remove a caveat

Removing a caveat in New South Wales can be complex and challenging. The steps are as follows:

1. Review and understand the caveat: It is essential to understand the nature of the legal or equitable claim being made against the property in order to determine the best course of action. We will do this first before advising you about removal.

2. Negotiation: If the caveat was filed due to a misunderstanding of the legal or equitable position, we will point this out to the lodger of the caveat (caveator) and invite them to remove it. If this is successful it will save you legal costs.

3. File a lapsing notice: If you do not expect the caveator to fight to keep the caveat and if time permits, we will advise you to file a lapsing notice with the LRS. This notice informs the caveator that they have 21 days to either remove the caveat or file an application with the Supreme Court of NSW to extend the caveat.

4.  Removal by the Court: Pursuant to s74MA of the Real Property Act 1900, you may apply to the Supreme Court of NSW to have the caveat withdrawn. The caveator has the onus (burden of proof) as against you as owner of the property to justify why the caveat should remain.

Case Study: Lew v Bluescope Distribution Pty Ltd [2010] NSWSC 794

Peter Lew (Plaintiff) and his wife owned a property in Dubbo (Property). They entered into a contract to sell the Property which was mortgaged to St George Bank (St George). The mortgage was registered. Subsequently the Plaintiff charged his interests in the Property to Bluescope Distribution Pty Ltd (Defendant) as security for a loan from the Defendant to the Plaintiff’s company. The Plaintiff consented to the lodgement of a caveat over the Property as part of a guarantee he signed. 

Months later, the Plaintiff and his wife defaulted on the mortgage to St George Bank. They entered into a contract to sell the Property, however the net proceeds of the sale were insufficient for any funds to pay the Defendant after St George was paid. The Defendant lodged a caveat on the Property.

Serious Issue

The caveator needs to establish that there is a serious question to be tried. The Defendant contended that it satisfied this requirement simply because it had a caveatable interest. The Court held that the Defendant, despite having a caveatable interest, had no claim against the Property in a practical sense in view of St George’s mortgage and the anticipated net proceeds of sale which were insufficient for any repayment to the Defendant.

Balance of Convenience

The Court held that the balance of convenience favoured the Plaintiff because the Defendant had no legitimate and realistic benefit in having the caveat remain.

Commercial Risk

Since the Defendant knew in the first place that its caveat would only be effective if there was an amount of money left over after the discharge of the registered interests of St George, it bore the risk that nothing would be left over. Since no funds were left over, the Defendant’s equitable interest recorded in the caveat therefore secured nothing.

Justice Pembroke ordered that the caveat be withdrawn by the Defendant.

Conclusion

Removing a caveat in NSW is a complicated process which requires expert legal advice.

Contact us today if you need assistance with a caveat!

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*