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A caveats is a powerful way to secure an interest in a property.

What is a caveat?

A caveat is a legal notice, registered on the title of a property, declaring that someone has a legal interest in the property.

A caveat prevents the owner of the property from mortgaging (refinancing) the title, or settling the sale of the property, unless the caveat is removed first. And a caveat is usually only removed when the caveat holder is paid money they claim to be owed.

In order to lodge a caveat on the title, the caveat holder must have a caveatable interest in the property. If they don't, the property's owner can apply to the Supreme Court to have the caveat removed, and seek to recover the cost of doing so from the caveat holder.

Caveatable interest holders include the recent purchaser of a property under a fully signed contract; an equitable interest in the property claimed by the spouse or family member of the owner; a chargee under a commercial loan agreement or business arrangement; and State and Commonwealth government agencies pursuant to certain laws (such as in relation to the payment of land tax, fraud prevention or the proceeds of crime).

It is important for a prospective purchaser to ensure that a recent title search or Register Search Statement (undertaken within about the last three months) is included in the vendor statement/section 32, but this is no guarantee that of no caveat is currently being registered on the title. However, it would be foolish of the vendor to try to hide a registered caveat from being revealed, given the purchaser's power to terminate the contract, due to adverse missing information, pursuant to Section 32K of the Sale of Land Act (Vic). As part of their settlement preparations, the purchaser's lawyer/conveyancer will order a title search, usually within three weeks of the settlement date, to check if any surprise caveats have been lodged since the date of sale.

When the vendor seeks the earlier release of the deposit money prior to settlement day, it is important for the purchaser to consider registering a caveat on the title, before the deposit is released, and despite any pressure they may receive from real estate agents. More about this in our earlier blog post: What is a Section 27 Deposit Release Statement?

It is the vendor's problem to remove any caveat from the title before settlement, because settlement can rarely occur with a caveat lodged on the title - and definitely not when a bank/lender is providing the purchaser with a loan. The bank will not release their loan funds unless they receive the security of a clear title. Caveats are often removed during the settlement process, with the caveat holder's lawyer/conveyancer participating in the PEXA workspace where settlement occurs. The purchaser's bank can be nervous when they see a caveat on the title (even if it's the purchasers' caveat) and they will often seek reassurance from the purchaser's lawyer that the caveat will be removed by settlement.

Note: the above is general information and should not be considered as legal advice.

Image via Freepik

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