March 2017

Move quickly to remove a caveat

If an owner wants to remove a caveat from the title to the owner’s land, issuing a lapsing notice is a quick and easy way to shift the problem to the party that lodged the caveat (caveator). Once the caveator has been served with the lapsing notice the caveator has 21 days to get an order from the Supreme Court extending the life of the caveat.

To get an order the onus is on the caveator to persuade the Court that the caveator has a legal or equitable interest in land. If the caveator is unable to do so, the Court will refuse to make the order and the caveat will lapse.

What the caveator may have thought was a secured debt will have become unsecured, and ordinarily the caveator will have to pay the land owner’s costs of the proceedings.

However a recent judgment of the Supreme Court, Kondylis v Bacic, is a reminder that “timing is everything”.

Ms Kondylis, the owner of the land, had entered into a contract to sell her property. A notice to complete had been served on her. The date fixed for completion was 10 February 2017.

Mr Bacic was a builder who had done some work on Ms Kondylis’s property. He had entered into a written agreement with Ms Kondylis by which Ms Kondylis said that she would pay for Mr Bacic’s work out of the proceeds of sale of her property (agreement).

In an effort to secure that payment Mr Bacic lodged a caveat against the title to Ms Kondylis’s property, claiming an equitable interest in the land deriving from the agreement.

Unfortunately for Mr Bacic, many cases have held that an interest in the proceeds of sale of a property is not capable of supporting a caveat. It is not a claim to an interest in the land - it is only a claim to an interest in the money paid for it.

The problem was that Ms Kondylis took no steps to remove Mr Bacic’s caveat until 8 February 2017, only 2 days before the date fixed for completion of the sale of the property. By that time it was too late to issue a lapsing notice (which requires 21 days to pass before the caveat lapses).

So, Ms Kondylis had to apply to the Supreme Court for an order pursuant to section 74MA of the Real Property Act 1900 that Mr Bacic withdraw his caveat. This was a reversal of the usual position, in that the owner of the land (Ms Kondylis) had to apply to the Court for an order, not the caveator.

In those circumstances, although the Court acknowledged that Mr Bacic had no caveatable interest, it invoked the principle that “a person who seeks equity, should do equity”. As she did not dispute the agreement with Mr Bacic, Ms Kondylis was required to pay an amount equivalent to the claimed value of Mr Bacic’s work into a trust account. The funds had to remain there while Mr Bacic brought proceedings in the Local Court to recover payment for his work.

The case is a stark reminder that caveats should be dealt with promptly. Had Ms Kondylis moved more quickly and issued a lapsing notice, the shoe would have been on the other foot and it would have been Mr Bacic who would have had to ask for the Court’s assistance – which it would not have given since he had no caveatable interest.

Authors: David Creais and Peter Barakate