Caveats 

A caveat is a statutory warning entered on a Torrens title. It does not create an interest in land and it does not decide who owns what. It does one thing: it prevents the registration of dealings inconsistent with the interest the caveator claims, holding the position long enough for the competing claims to be resolved. Understanding that limited function answers most questions about caveats.

A caveatable interest is required

Only a person claiming a legal or equitable interest in the land may caveat. The claimed interest must be proprietary. This excludes a great deal that people would like to protect:

• A purchaser under a contract for sale has an equitable interest once the contract is specifically enforceable, and may caveat.
• An equitable mortgagee, a beneficiary under a trust of land, a lessee under an unregistered lease, and a person with an interest under a constructive trust may all caveat.
• A contractual right to be paid money, even money connected with the land, is not an interest in land. A builder owed money for work on the property has no caveatable interest merely by being owed it, though a charging clause in the building contract may create one.
• A licence confers no proprietary interest and cannot support a caveat.

The caveat must state the interest claimed with reasonable precision. A caveat that misdescribes the interest, or claims one the caveator does not hold, is liable to be removed.

The effect of lodgement

Once recorded, the caveat prevents registration of dealings inconsistent with the claimed interest. The registrar will generally not register a transfer or mortgage while it stands.

A caveat does not improve the caveator's priority as between competing equitable interests, and this is regularly misunderstood. Priority between equitable interests is determined by the ordinary rules; the caveat is a mechanism for preserving the status quo, not a means of gaining an advantage. Its practical priority significance lies in the notice it gives to later dealers.

Lapsing and extension

A caveat does not sit on the title indefinitely once challenged. The registered proprietor, or another person with a registrable dealing, may serve a lapsing notice. The caveator must then apply to the court within the statutory period — commonly twenty-one days, though it varies — to extend the operation of the caveat. If they do not, the caveat lapses automatically and the dealing may proceed. In New South Wales that procedure, including the extension application, sits in pt 7A of the Real Property Act 1900.¹

On an extension application the court asks two questions, and they mirror an interlocutory injunction: is there a serious question to be tried that the caveator holds the interest claimed, and does the balance of convenience favour maintaining the caveat? The court is not deciding the underlying dispute, and the caveator is ordinarily required to give an undertaking as to damages.

A caveat may also be removed on application to the court or, in some jurisdictions, by the registrar, and it may be withdrawn by the caveator.

Lodging without reasonable cause

The Torrens statutes make a caveator who lodges or maintains a caveat without reasonable cause liable to compensate anyone who suffers loss as a result. The exposure is real: a caveat that delays a settlement can cause substantial loss, and the caveator's honest belief is not by itself a defence if the belief was unreasonable. This is why lodging a caveat to apply commercial pressure, without a genuine proprietary interest, is a serious step rather than a tactical one.

What a caveat does not do

A caveat is a statutory injunction against dealings, not a claim to title and not a means of creating an interest. Two consequences follow.

First, lodging a caveat does not improve the caveator's priority position. The interest is what it was; the caveat protects it from being defeated by a later registered dealing by giving notice and freezing the register. A caveator whose interest was already postponed by their own conduct gains nothing.

Second, a caveat does not entitle the caveator to possession, rent, or any dealing with the land. It is purely defensive.

The competing interests it protects against

The point of the caveat is the indefeasibility of a registered interest. Under Torrens, registration confers title free of prior unregistered interests, subject to the statutory exceptions. An unregistered equitable interest — a purchaser under an uncompleted contract, a beneficiary under a trust, an equitable mortgagee, a party with an equity by estoppel — is therefore vulnerable to being extinguished by a registered dealing in favour of a third party.

The caveat closes that window. While it is in force the Registrar will not register a dealing inconsistent with the interest claimed, which gives the caveator the opportunity to assert their rights before the register changes.

Drafting the claim

The instrument must identify the estate or interest claimed, the facts on which the claim is based, and the land affected. Getting this wrong is the most common practical failure:

• A claim expressed too broadly — a "caveatable interest" or an interest "as purchaser" without identifying the contract — may be rejected or removed.
• A claim expressed too narrowly may not cover the interest the caveator actually holds, and it cannot usually be improved after a lapsing notice has been served.
• The prohibition sought should be tailored. A caveat absolutely prohibiting all dealings is often wider than the interest requires, and a caveator who prohibits more than necessary is exposed on the compensation provision.

Withdrawal and consent

A caveator may withdraw a caveat at any time, and commonly does so in exchange for an undertaking or on completion of the transaction the caveat was protecting.

A caveator may also consent to a particular dealing being registered while the caveat otherwise remains in force — the usual course where a registered proprietor needs to refinance and the caveator's interest is not affected by the new mortgage.

Applying this in a problem question

1. Identify the interest claimed and test it for proprietary character before anything else — no caveatable interest, no caveat.
2. Check how the interest arose: contract, trust, charge, or a statutory right.
3. If a lapsing notice has been served, apply the statutory period and say what happens if the caveator does nothing.
4. On an extension, apply the serious-question and balance-of-convenience tests, and mention the undertaking as to damages.
5. Consider exposure to compensation if the facts suggest the caveat was lodged to obtain leverage.

Self-check

• Have I tested the claimed interest for proprietary character rather than assuming it?
• Have I avoided treating a debt connected with land as an interest in it?
• Have I applied the correct lapsing period for the jurisdiction?
• Have I noted the caveator's exposure where reasonable cause is doubtful?