Caveat Removal in Victoria: What to Do If a Caveat Is Lodged on Your Property

What a Caveat Is

A caveat is a statutory notice recorded against a folio of the Register kept by Land Use Victoria. The word "caveat" is Latin for "let him beware" — and that captures the function precisely. Once recorded, the caveat warns the world that the caveator claims an interest in the land, and (with limited exceptions) prevents the Registrar of Titles from registering any further dealing that would be inconsistent with the claimed interest.

Caveats are governed by Part V of the Transfer of Land Act 1958 (Vic), principally sections 89, 89A, 90 and 118. A caveat is lodged electronically through the PEXA conveyancing platform (or, in limited cases, in paper form). The fee is modest and the lodgement is processed quickly — which is both the strength of the caveat system and its principal weakness.

Why Caveats Are Lodged

Caveats are lodged for a wide range of reasons. The common ones include:

• a purchaser protecting the equitable interest acquired under a signed contract of sale before settlement;
• an unregistered mortgagee or chargee protecting their security pending registration;
• a separated spouse or de facto partner asserting an equitable interest in the family home held in the other party's sole name;
• a builder or trade creditor (often wrongly) trying to secure an unpaid debt;
• a beneficiary asserting an interest in real estate specifically devised under a Will;
• a co-contributor to the purchase price asserting a constructive or resulting trust; and
• a lender under a private loan agreement protecting an equitable charge.

Caveatable Interests

A caveat must be supported by a caveatable interest — a recognised legal or equitable interest in the land itself. A mere personal claim against the registered proprietor is not enough. Examples of valid caveatable interests include:

• the equitable interest of a purchaser under a signed contract of sale;
• the interest of an unregistered mortgagee or chargee;
• an equitable interest under an express, resulting or constructive trust;
• the interest of a beneficiary under a Will in specifically devised real estate (in defined circumstances);
• the interest of a person who has contributed to the acquisition or improvement of the land and claims an equitable interest as a result; and
• the interest of a party to a binding agreement to grant an easement or other interest in land.

Examples of Invalid Caveats

Caveats that are not supported by a caveatable interest are vulnerable to removal — and to compensation under section 118. Common examples of invalid caveats include:

• caveats lodged to secure payment of an ordinary debt that is not, on any view, secured against the land;
• caveats lodged by a builder or supplier whose contract does not create any charge or security interest over the land;
• caveats lodged to apply commercial pressure in an unrelated dispute (for example, a shareholder dispute that has nothing to do with the land);
• caveats lodged by a former partner asserting an interest in property that the party clearly has no equitable claim to; and
• caveats lodged in support of a personal expectation that property might be left under a Will — a hope is not an interest in land during the proprietor's lifetime.

How a Caveat Affects Sale, Refinance or Settlement

Once a caveat is recorded against a folio, the Registrar of Titles will not register a subsequent dealing that is inconsistent with the claimed interest. In practice, this means:

• a Transfer of Land to a purchaser cannot be registered, so settlement of a sale cannot proceed in the ordinary way;
• a new mortgage cannot be registered, so a refinance cannot complete;
• a discharge of mortgage may be able to proceed, but clear title cannot be delivered;
• the registered proprietor's ability to deal with the property is effectively frozen until the caveat is withdrawn, lapses or is removed by court order; and
• even where a transaction can be restructured around the caveat, the costs of doing so — additional interest, extension fees, professional fees — can be significant.

Requesting Voluntary Withdrawal

The fastest, cheapest and most common way to deal with a caveat is to ask the caveator to withdraw it. A letter from the property owner's solicitor to the caveator (or the caveator's solicitor) setting out, in measured terms, why no caveatable interest exists — and offering, where appropriate, an alternative form of protection such as an undertaking to hold part of the sale proceeds in trust — will resolve a surprisingly high proportion of caveat disputes.

Voluntary withdrawal is effected by the caveator lodging a Withdrawal of Caveat with Land Use Victoria. It is a simple electronic dealing that can be completed in hours once the parties are agreed. For an owner facing settlement in days rather than weeks, voluntary withdrawal is usually the only realistic option.

Section 89A Lapsing Notice

Where voluntary withdrawal cannot be negotiated and time is not of the essence, the registered proprietor (or another person with sufficient interest) may apply to the Registrar of Titles under section 89A of the Transfer of Land Act 1958 (Vic) for a notice to be served on the caveator requiring the caveator to commence proceedings in a court of competent jurisdiction to substantiate the caveatable interest.

If the caveator does not commence proceedings within 30 days of service of the notice — and notify the Registrar of having done so — the caveat lapses automatically. The application fee is modest, and the process puts the burden squarely on the caveator to justify the continued registration of the caveat.

The principal limitation of the section 89A process is time: between Registrar processing, service on the caveator and the 30-day notice period, it generally takes six to ten weeks for a caveat to lapse under section 89A. That makes the process unsuitable where a settlement or finance deadline is only days or weeks away.

Supreme Court Application Under Section 90(3)

Where the section 89A timeframe is too long — or where the caveator has filed a defence or proceedings of their own — the registered proprietor (or another person with an interest in the land) may apply to the Supreme Court of Victoria under section 90(3) of the Transfer of Land Act 1958 (Vic) for an order that the caveat be removed.

On a section 90(3) application, the onus is on the caveator to satisfy the Court that there is a serious question to be tried that they hold a caveatable interest, and that the balance of convenience favours leaving the caveat in place. The test is similar to that applied on an application for an interlocutory injunction (canvassed in our companion guide to urgent injunctions in Victoria). If the caveator cannot meet that onus, the caveat will be ordered removed.

Section 90(3) applications are commonly made urgently and can be heard in the Practice Court within days. Where a settlement is imminent, an applicant who can demonstrate real prejudice from the caveat will usually be able to secure a prompt hearing.

Compensation for Wrongful Caveats

Section 118 of the Transfer of Land Act 1958 (Vic) provides that a person who lodges or continues a caveat without reasonable cause is liable to compensate any person who suffers loss as a result. The measure of loss can be significant and includes:

• the cost of a lost or rescinded sale, including difference in price on resale;
• additional interest on bridging or other finance held up by the caveat;
• extension fees and bank charges incurred to keep transactions afloat;
• professional fees of conveyancers, solicitors and accountants engaged to address the caveat; and
• consequential business loss where the property is commercial.

Section 118 is a powerful deterrent against the casual or tactical lodgement of caveats. Caveators — and the lawyers who advise them — should be in no doubt that lodging a caveat to apply pressure to an unrelated dispute, or to secure an unsecured debt, exposes them to substantial liability. The general framework for costs and adverse costs orders is canvassed in our guide to costs consequences in Victorian litigation.

Caveats in Family Law and Property Settlement Disputes

Caveats are often used in family law and de facto property disputes to protect the position of a separated party while a property settlement is being negotiated or litigated. Where the family home is held in the sole name of one spouse but both parties have contributed to its acquisition or improvement, the non-registered party may have an equitable interest sufficient to support a caveat.

That said, caveats are not a substitute for Family Court orders. The Family Court has its own jurisdiction to make orders restraining dealings with property pending property settlement, and those orders are often a more appropriate (and less risky) tool. Our companion guide to caveats over property after separation explores the issues in detail. The broader Victorian family law framework is canvassed in our guide to the four-step property settlement process.

Caveats in Estate Disputes

Beneficiaries occasionally lodge caveats over estate real estate where they assert an interest in a specifically devised property — for example, where the Will leaves a particular property to a particular beneficiary and the executor proposes to sell it. Whether such a caveat is supportable depends on the terms of the Will, the stage of administration of the estate and the rights of the beneficiary against the executor.

Probate caveats — which prevent a grant of probate issuing in the first place — are a different process entirely, governed by the Supreme Court (Administration and Probate) Rules 2014 (Vic) rather than the Transfer of Land Act. They are discussed in our guide to probate caveats in Victoria. Where the underlying dispute concerns the validity of a Will, executor conduct or family provision, the broader estate-litigation framework is set out in our guides to executor disputes and family provision claims.

Caveats in Commercial and Loan Disputes

Caveats arise frequently in commercial disputes — usually in connection with unregistered mortgages, equitable charges granted under loan agreements, or alleged constructive trusts arising from joint ventures and partnerships. A caveat in support of a genuine equitable mortgage or charge is appropriate and lawful. A caveat lodged to secure an unsecured loan or to pressure a commercial counterparty is not.

Where the underlying dispute is essentially a commercial disagreement, the broader options for resolution are canvassed in our guides to resolving a business dispute before court and responding to a letter of demand.

Urgency Where Settlement or Finance Is Imminent

The right strategy for removing a caveat depends almost entirely on the time available:

• Settlement in days: urgent negotiation for voluntary withdrawal is the priority, supported by an undertaking to hold sale proceeds in trust if required. If negotiation fails, an urgent section 90(3) application in the Practice Court of the Supreme Court of Victoria may be the only realistic option;
• Settlement in weeks: negotiation remains the first option, with a section 90(3) application as the fallback; section 89A is generally too slow;
• No imminent transaction: a section 89A lapsing notice is usually the most proportionate and cost-effective tool, supplemented by negotiation; and
• Where the caveator has begun proceedings: the caveat dispute is likely to be resolved as part of the substantive proceeding, and removal will require an interlocutory application within that proceeding.

The general guides to selling property in Victoria and buying property in Victoria set out the broader conveyancing context in which caveat disputes typically arise.

When to Obtain Legal Advice

A caveat dispute is one of those areas of property law where the right advice in the first 24–48 hours can be the difference between a salvaged transaction and a failed one. The owner needs to know quickly whether the caveator has any arguable interest, whether voluntary withdrawal is realistic, whether section 89A is fast enough, and whether an urgent Supreme Court application is warranted. The caveator needs to know whether they are entitled to lodge a caveat at all — and what their exposure is under section 118 if they are not.

Parke Lawyers advises property owners, purchasers, vendors, developers, lenders, executors, beneficiaries and parties to commercial and family disputes on the full range of Victorian caveat issues. Our property and conveyancing practice works closely with our litigation and dispute resolution, commercial and business law and estate litigation and TFM claims teams so that caveat disputes are resolved on the best available terms — and, where settlement is at risk, resolved fast.

Frequently Asked Questions