Michael Callow, Partner
By Michael Callow, Partner
Accredited Specialist – Personal Injuries LawA regular “debt recovery” enquiry I receive is whether a Caveat can be lodged against property owned by the debtor, to prevent the sale of the property, to ensure the property remains available as an asset against which the debt can be recovered.
A Caveat lodged against the title of a property is a notification to the Registrar of the Department of Natural Resources and prevents any dealing with the property whilst the Caveat remains registered against the title.
Generally, if the debt is a judgement debt with no other connection or link with the property owned by the debtor there will be no right to lodge a Caveat. When providing that advice I always highlight the consequences of lodging a Caveat against property without justification.
The Land Titles Act 1994 provides that “a person who lodges or continues a Caveat without reasonable cause must compensate anyone else who suffers loss or damage as a result”.
There is also an allowance for a Court, in considering compensation for the improper lodging of a Caveat, to award exemplary damages, being damages, in effect, to punish the party at fault.
An example of the Court’s application of the compensation provisions was outlined in a case in the late ‘90’s where a party, in default under its mortgage, lodged a Caveat to prevent the sale of the property by the mortgagee. The party lodging the Caveat asserted that it was not in default under the mortgage with the Court finding that it was difficult to accept that the Caveator could hold “an honest belief on reasonable grounds that a caveatable interest existed”, given the Caveator knew it was in default under the mortgage.
It transpired that the purchaser of the property, from the mortgagee, intended developing the land into a childcare centre. The evidence disclosed that a director of the Plaintiff Caveator was an executive officer of two other companies who were involved in the building of childcare centres, and was a director of another company which owned land on which a competing childcare centre was to be built. It was evident the lodging of the Caveat was solely to prevent the sale of the land, and by extension cause a delay in the construction of the purchaser’s childcare centre.
In accepting that there was no reasonable cause for the lodging of the Caveat the Court awarded damages to the purchaser of the property, compensating the purchaser not only for interest, bank charges and government duties with respect to the holding costs of the property, and Town Planning application costs thrown away, but also the sum of $200,000.00, as exemplary damages, being an allowance for loss of profits suffered by the purchaser of the land, being unable to finalise the purchase of the land due to the Caveat, resulting in a significant delay in the developing and opening of their childcare centre.
A Caveat can be a useful tool but lodging one without good reason may end up costing you dearly.