By Russell Cocks, Solicitor
First published in the Law Institute Journal
The caveat is the Torrens system’s safety valve. The principle of indefeasibility allows an interest in land, once registered, to effectively destroy competing interests, but the caveat gives a competing interest holder a momentary chance to assert their interest. Unfortunately, caveats are not used frequently enough.
Callinan J. recently said:
It used to be the practice of careful conveyancers, acting for persons acquiring registrable estates or interests in Torrens title land, to lodge with the officials in charge of the Register, a caveat as soon as the agreement for the relevant dealing was made, in pre-emptive protection of their clients’ prospective legal estates or interests pending completion of their agreements and registration of the instruments perfecting them.
Colloquial evidence from the Titles Office suggests that caveats are lodged in respect of only about 25 per cent of transfers, so purchasers are engaging in high risk tactics. There can be no excuse for not lodging a caveat in a commercial transaction, but presumably caveats are not lodged in residential transactions because of the cost. The Titles Office fee is $47.30. A fair charge for preparing and lodging a caveat might be $50, so for the sake of $100 purchasers risk having their interest in the land defeated and solicitors are risking a negligence action as a result.
Black v Garnock is a recent example of the risks involved. A purchaser’s claim was defeated by a subsequent Sheriff’s writ. The failure to caveat was certainly not the only reason the purchaser lost, but that failure was heavily relied upon by the majority in the High Court in finding against the purchaser. The practical result was that the purchaser, who had completed the transaction in the face of the writ, would be required to pay out the judgment creditor’s claim so that the purchaser’s transfer could proceed to registration. No doubt the purchaser will seek compensation from their solicitor.
Sheriff’s writs are relatively rare, but competing claims arising during the life of a contract are common and the failure to caveat can cost a purchaser (and the solicitor) dearly. Preston-Lalor Credit Co-op Ltd v Razzi and Bunning Building Supplies P/L v Sgro are cases where ‘innocent’ purchasers were unable to proceed to registration as a result of a caveat lodged during the period between settlement and lodging of the purchasers’ transfer, in the latter case, just 35 minutes before. Both cases involved typical domestic conveyancing scenarios and the purchasers did not caveat. In a perfect world of ‘instant registration’ at settlement, this would not occur. But the reality is that even when solicitors lodge for registration there is a time delay, and colloquial evidence suggests that when lenders take the documents for lodging, delays of up to six months are not uncommon. When you realise that the person in front of you in the queue at the Titles Office might be lodging a competing caveat, there is good cause not to sleep at night.
There is just no sense in exposing the purchaser (and solicitor) to this risk, particularly when the antidote is so cheap. Acknowledging that an extra $50 in a competitive residential conveyancing marketplace might mean the difference between receiving instructions and not, at least advise those clients who do instruct you that they should give you instructions to lodge a caveat. In your first letter explain that there are risks of competing interests arising during the contract period and that a caveat provides protection from those interests. Consider offering not to charge for preparing the caveat, but seek authority to include the fee in your disbursements. Even if the client does not give those instructions, you have warned them and you may then enjoy a good night’s sleep.
Just another short note on caveats – a recent case, Riverview Projects Pty Ltd v Elleray & Anor [2007] VSC 150, acknowledged the right of a ‘domestic partner’ to lodge a caveat against a property owned not by the other domestic partner but against a property owned by a company substantially controlled by the other domestic partner and in which the caveator had no interest. This caveat was permitted notwithstanding that the caveator had previously acknowledged in writing that the caveator did not, and would not in the future, have any interest in that property.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.