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Risks of Improperly Lodging a Caveat

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RISKS OF IMPROPERLY LODGING A CAVEAT AND THE PROCESS FOR REMOVING A CAVEAT

In general terms, a caveat is notice that a person claims a particular unregistered interest in land. 

POWER TO LODGE A CAVEAT 

Section 89(1) of the Transfer of Land Act 1958 (Vic) provides that:

“[a]ny person claiming any estate or interest in land under any unregistered dealing or by devolution in law or otherwise or his agent may lodge with the Registrar a caveat in an appropriate approved form forbidding the registration of any person as transferee or proprietor of and of any instrument affecting such estate or interest either absolutely or conditionally and may, at any time, by lodging with the Registrar an instrument in an appropriate approved form, withdraw the caveat as to the whole or any part of the land”.

PURPOSE OF A CAVEAT

The lodging of a caveat does not create any priority in the interest noted in the caveat. The purpose of the caveat is to notify the Registrar of a claim and to enable the giving of notice to the caveator of any dealing.

A mere contractual or personal right does not give rise to a caveatable interest, unless such a right is coupled with the granting of a relevant interest in the land.  Similarly, a mere debt owed by the registered proprietor does not give rise to a caveatable interest.

RISK OF IMPROPERLY LODGING A CAVEAT

If a caveat is lodged without reasonable cause the person lodging the caveat may be liable for any loss caused by the caveat. As a caveat prevents dealing in land, such loss is likely to be connected with the failure to be able to deal with the land.

Section 118 of the Transfer of Land Act 1958 (Vic) provides that: 

“[a]ny person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make any person who sustains damage thereby such compensation as the Court deems just and orders”.

In Deutsch v Rodkin & Ors. [2012] VSC 450, an application was made for compensation under section 118 of Transfer of Land Act 1958 (Vic) and alternatively for damages for conspiracy to lodge caveats. Compensatory damages were awarded for the reduction in the sale price of the property, interests and mortgagee legal costs; and exemplary damages were also awarded.

In Lombardo v Bahnan (No 2) [2014] VSC 438, the Chief Justice stated:

“This Court has said on many occasions that the lodging of a caveat is a serious business as it can affect commercial transactions and the financial interests of others. In addition to the financial cost of bringing proceedings to remove a caveat there may be a significant emotional and psychological cost involved. A party who lodges a caveat on a basis which is bound to fail should incur the costs of the Court proceedings instituted to remove them”.

The Chief Justice ultimately exercised her discretion to make an order that the first defendant pay the plaintiff’s costs of the proceeding on an indemnity basis.

REMOVAL OF A CAVEAT 

The Transfer of Land Act 1958 (Vic) provides two different methods to remove a caveat. 

The procedure under section 89A of the Transfer of Land Act 1958 (Vic) provides that: any person interested in the land affected by the caveat may make an application to the Registrar for service of a notice on the caveator that the caveat will lapse unless:

  1. the application for removal of the caveat is abandoned; or

  2. notice in writing is given to the Registrar that proceedings in a Court of competent jurisdiction to substantiate the claim of the caveator are on foot.

The time allowed in the notice given by the Registrar is usually 30 days and unless the application to remove the caveat has been abandoned or notice in writing has been given by the caveator, within the timeframe specified by the Registrar, the caveat will lapse.

The advantages of using this procedure to remove a caveat are that it is relatively inexpensive and it places the onus on the caveator to issue proceedings to substantiate their caveat. However, the disadvantages of using this procedure to remove a caveat are that it is relatively slow in that the caveator has 30 days to respond to the notice issued by the Registrar and if the caveator issues a proceeding to substantiate the caveat then the caveat will remain in place until the determination of those proceedings, unless an application is made to remove the caveat. 

A different procedure to remove a caveat is provided in section 90(3) of the Transfer of Land Act 1958 (Vic). This section provides that any person who is adversely affected by a caveat may bring proceedings in the Court against the caveator for removal of the caveat. This procedure is appropriate where the removal of the caveat is urgent. The application is generally heard in the Practice Court as an urgent matter.

If you have any questions in relation to lodging or applying to remove a caveat, contact one of our experienced property lawyers on 1800 VAS LAW. 

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