What are they?
A caveat is a warning and, once registered, notifies the world at large to ‘be aware’ of a potential claim.
In the property sector, a caveat is a legal instrument that can be registered against a property title to protect a person’s rights or interests in respect of a particular property. A caveat prevents the registered owner/s of the property from transferring, selling or disposing of, mortgaging or otherwise dealing with it.
Why register a caveat?
The Land Transfer Act 2017 stipulates when caveats can be registered. It is important that the person wanting to register a caveat (the caveator) meets specific requirements as set out in the legislation.
The caveator must have a ‘caveatable interest’ in the property. The legislation specifies the situations in which a caveatable interest may exist. If you think you may have a caveatable interest in a property, we encourage you to talk with us about your particular situation.
One common scenario in which caveats are registered is when a person dies and the executors of their will are in the process of transferring or otherwise dealing with the deceased person’s property. The deceased’s former partner or spouse may register a caveat (called a notice of claim in this situation) against the deceased’s property to protect their interests and their right to bring any claims under the Property (Relationships) Act 1976. This is particularly common in situations where executors are unwilling to cooperate or consider such claims.
Another situation in which caveats are commonly registered is where a person is a beneficiary of a trust and has an expressly recorded entitlement to a particular property or piece of land. That beneficiary may wish to prevent their entitlement from being transferred or otherwise dealt with, and so may register a caveat to protect their proprietary interest.
It is important to keep in mind that registering a caveat is not a decision that should be made lightly. There are serious potential consequences for the caveator if a caveat is improperly registered. The Act allows people affected by the registration of a caveat to claim compensation for loss or damage against the person who registered it, especially where there was no caveatable interest to begin with. Lawyers can also face liability and be penalised for assisting their client to register a caveat where there is no caveatable interest. Claims for compensation are heard and determined by the High Court.
One situation in which people may seek to claim compensation is when the sale of the property has been impacted or delayed by the registration of a caveat, and there were no reasonable grounds to justify the registration of the caveat or sustain one in the first place. Affected people may apply to the court for compensation for loss or damage. This compensation could include an award of compensatory damages (to compensate and restore the claimant to the financial position they would have been in had the caveat not been registered) and, in extreme cases, punitive damages (designed to punish the caveator).
Registering a caveat
Once you have confirmed a caveatable interest in a particular property, you should discuss with us about registering that caveat. We will prepare and ask you to sign an Authority and Instruction Form. This confirms your instructions and facilitates registration of the caveat on the Land Information New Zealand (LINZ) database.
When can caveats be removed?
There are three situations in which caveats are removed:
- By consent
- If the caveat lapses, or
- By a court order.
More commonly, caveats are removed when the parties have set aside their differences, and the caveator may decide to withdraw the caveat from the property title.[1]
Further, the Act[2] provides that a caveat may lapse following an application made by an affected person, usually the registered owner of the property, to the Land Transfer Registrar, unless a specific and timely response is received from both the caveator and the court. The caveat will lapse unless the caveator makes an application to the court within 10 working days to sustain the caveat, and the court makes one of three types of order within a further 20 working days. The orders the court can make include an interim or temporary order that the caveat not lapse, a final order or an order postponing the caveator’s application for the time being.
As well, the Act[3] confirms that a person who has an estate or interest affected by a caveat may apply to the court for an order that the caveat be removed. This means that the registered owner, for example, may apply to the court rather than to the Land Transfer Registrar seeking removal of the caveat. Claims for compensation for loss or damage may also be made at the same time.
In summary, a caveat is a robust tool for protecting one’s rights and interests over real property. It is important to receive sound legal advice on the effects and implications of registering a caveat, due to the risks and consequences associated with registering one incorrectly.
[1] Section 144.
[2] Section 143.
[3] Section 142.
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