In brief – What conveyancers should know about caveats and lapsing notices
In conveyancing, you need to take steps quickly if you are acting for someone who needs to stop a caveat from lapsing.
Lapsing notices need to be dealt with properly and promptly
Lapsing notices are an aspect of the conveyancing process that requires particular expertise and speed. The exposure is also high, with the potential for the conveyance to fall apart if it is not dealt with properly.
The real issues arise when you need to stop a caveat from lapsing, in other words, extend a caveat.
I have put together a list of tips that you should be aware of if you are acting in this area. If you are a licensed conveyancer, you will probably see these issues arise in possibly four scenarios, which I will go through briefly.
Scenario 1 – You are acting for a vendor who needs to get a caveat removed
You are acting for a vendor. You exchange contracts and then issue a lapsing notice (under section 74J(1) of the Real Property Act 1900) to remove caveats on title. The caveator then commences proceedings to extend the caveat. The vendor is then in a situation where:
- It needs to get the caveat removed quickly and is forced to defend Supreme Court proceedings.
- It needs to prevent the conveyance from falling over and it being sued for any loss under the contract.
Tip - whenever you are acting for a vendor and you know (prior to exchange) that there are caveats on the title, for abundant caution include a special condition in the contract which allows the vendor to rescind or extend the completion date if necessary as a result of a caveat or other restraint.
Scenario 2 – You are acting for the vendor and do not have enough time to issue a lapsing notice
You are acting for a vendor and for whatever reason (be it that a caveat has been lodged late, or you were told the caveator would withdraw it voluntarily and then changes its mind), you now do not have enough time to issue a lapsing notice and also comply with your obligations under the contract for sale.
In this situation you would avoid the lapsing process altogether and instead approach the court for an order under section 74MA of the Real Property Act, that the caveat be withdrawn. The rules for this type of application are similar to those in a standard application to have a caveat extended.
Scenario 3 – You are acting for a caveator who wishes to extend a caveat
You are acting for the caveator who is served with a lapsing notice by a vendor in the process of a conveyance. Your client wishes to extend the caveat.
In dealing with the lapsing notice, not only must your client have regard to the steps that need to be taken within a 21 day period from service of the notice, but it also needs to have regard to the circumstance in which it has been issued, ie by a vendor who is in a contract.
I raise this for the following reasons:
- Your client caveator will be required to give an undertaking to the court in respect of any damage which might result from their application. If the conveyance does not proceed because of a wrongful application, the exposure to damages could be high.
- The fact that a settlement is imminent will mean that the proceedings need to be dealt with urgently.
Scenario 4 - You are acting for a purchaser and you need to issue a lapsing notice to a third party caveator
This article deals primarily with Scenario 3 – you are acting for a caveator who is served with a lapsing notice and wishes to extend the caveat. These rules will also apply, to varying extents, in the other scenarios.
Preparing an application to extend a caveat
An application to extend a caveat should be made pursuant to section 74K of the Real Property Act. The application should be commenced in the Supreme Court by summons (not statement of claim) and with a supporting affidavit.
What you are doing is asking the court for an interlocutory injunction restraining the registered proprietor from dealing with the land pending the substantive trial of the caveator's claim.
The court will need to be satisfied of two things. It goes without saying that your affidavit material should cover these issues:
- Is there a serious question to be tried? This is not difficult to discharge. Essentially the caveator will need to show that it does have a prima facie claim and more precisely, a proprietary interest in the land.
- Does the balance of convenience favour the caveat being extended? This will largely depend on the facts of the case, however courts will often hold that the balance of convenience favours extending the caveat.
Offering a caveator appropriate substitute security
If you are acting for a registered proprietor, I find one way that is generally successful in shitfting the court’s view and showing that the balance favours removing the caveat is to show that you have offered the caveator appropriate substitute security to protect their interest.
I recommend that you make that offer even if it is on a without prejudice basis to the final claim, ie your client denies the claim underlying the caveat.
Filing your application in the Supreme Court
Because of its urgent nature, you will need to file your application with the duty judge of the Supreme Court, not simply in the court registry. Accordingly, when your documents are ready, you should contact the associate to the duty judge and advise them of the urgent application and ask for a time to appear before the duty judge. Give as much warning as possible.
The duty judge is available at any time. Applications should be made between 10am and 4pm unless extremely urgent.
If it is necessary to make an application out of court hours, you will need to arrange (prior to 4pm) for the registry to be kept open, as the orders will have no effect until entered. A fee of approximately $1200 will apply.
Be aware of the Supreme Court rules and time requirements
In addition to the Real Property Act and the court rules, the Supreme Court has a specific practice note dealing with these applications, Supreme Court Practice Note No. SC Eq 8, Urgent Matters in the Equity Division.
In particular, this practice note makes it clear that when you appear before the duty judge he/she will expect:
- Unless special circumstances exist, that you have notified the defendant(s) of the application prior to filing it.
- That you have sought agreement as to undertakings from the defendant(s) prior to making any application.
- That parties will only apply for extensions of caveat if it is impossible to reach an interim agreement to facilitate the substantive matter being heard promptly.
Of particular importance is that the practice note also requires that any application for extension of caveats should be made no less than five days before the expiration of the lapsing notice in respect of the caveat, unless exceptional circumstances exist.
What should you do before filing an application to extend a caveat?
Firstly, you should send a letter to the proprietor's solicitor, advising that your client will not allow the caveat to lapse. You should then try to reach agreement in respect of the caveat.
For example, you might say: "My client will allow the caveat to lapse and your client’s sale to proceed on the basis that the amount of $X is paid into court from the sale proceeds."
Such a letter has a number of advantages:
- You can indicate to the court that you have complied with the practice note.
- You may reach agreement and therefore avoid the need to bring an application to extend the caveat, instead allowing your client to focus its time and money on the substantive claim.
- If you are unable to resolve it and it is necessary to run the application for extension, the letter will be very useful when it comes to arguing who pays the costs.
If you are unable to reach an agreement, you should then inform the defendant that you intend to file an application with the duty judge and the time it is listed.
How much time does your client have?
This is one instance where you do not have time on your side. Repeatedly, I have clients come to me on about the 18th day after receiving the lapsing notice, asking me to do something to stop the caveat from lapsing.
As you can see, the practice note requires that any application for extension of caveats be made no less than five days before the expiration of the lapsing notice. This means that your client needs to file an application by day 14 at the latest.
Before making an application, the correspondence I have referred to above needs to be sent and court documents and affidavits need to be prepared.
Importance of preparing an application to extend a caveat in time
If an agreement cannot be reached by day 7 from the date of service of the lapsing notice, your client needs to instruct to start preparing an application to extend the caveat.
If an order is not made in time, the caveat will lapse upon the expiration of 21 days. When advising your client, you should make them aware of Section 74O of the Real Property Act 1900. The caveator will also be prevented from lodging a further caveat in respect of the same estate or interest without leave of the court.
Appearing before the duty judge
It is likely that you will need to make several appearances before the duty judge.
Firstly, the court almost never makes an order of this nature without the defendant being there. (Malouf v O'Donohoe). This will generally mean that you first need to obtain orders for short service (if the defendant will not agree to attend voluntarily).
On the next occasion, the court will then generally make orders for the service of evidence and list the matter for hearing.
A caveator applying for an extension will normally be required to give an undertaking to the court as to damages. You will need to advise your clients of the implications of this - see Rule 25.8 of the Uniform Civil Procedure Rules 2005.
I recommend that you have your clients sign such a written undertaking prior to appearing in court.
You will also need to give an undertaking to the court to pay any filing fees. You should have a cheque with you to pay the filing fees.
What other orders should you ask for?
As I have said above, the orders will be of no effect until entered. For this reason you should also ask that the orders be made "forthwith".
It is my experience that, once an application is put on to extend a caveat, the defendant (registered proprietor) will try (and you should if you are the defendant) every argument to prove that your caveat is invalid.
One argument is that the caveat is bad in form, either in describing the interest, or in describing the registered proprietors affected.
One thing I have found particularly useful (as has the court) in these arguments is reference to the Register General's Directions. If you haven’t read them, you should.
Defendants may also try to argue that the caveat is invalid on the basis that there is no caveatable interest.
Seeking alternative orders under the Real Property Act
Because of the arguments generally raised by the defendant, it is good practice when drafting an application to include not only an order extending the caveat, but also alternative orders under the Real Property Act:
- Section 74L, the court shall disregard any failure of the caveator to comply strictly with the requirements.
- Section 74K, leave to amend a caveat if necessary.
- Section 74O, leave to lodge fresh caveats if necessary.
Make sure that your application includes final orders. I have repeatedly seen a summons drafted where interim relief is sought but final orders are not. For example, do you also want an order under section 109 of the Conveyancing Act for a judicial sale, or an Order for Specific Performance?
Orders must be lodged with Register General’s office
For any orders extending a caveat to be effective, not only must they be entered forthwith with the court, but they must be lodged with the Register General's office – Land & Property Information.
Make sure your caveat has been properly stamped
If you need to rely on a contract or caveat in evidence, make sure it has been stamped properly. If it is not, the Duties Act prevents it from being put into evidence. It is best not to have this argument at all.
Don’t lose sight of the conveyance
It really goes without saying, but don’t get so distracted by the caveat proceedings that you forget about the conveyance. Stay in control of the conveyance.
This article is based on a seminar presented in Sydney in June 2013.