A favourite tactic of brokers and lenders is to hide clauses within the fine print of their mandate agreements and letters of offer granting themselves the right to lodge caveats over a borrower’s real property to secure the payment of commitment/establishment fees.
We have had a spate of recent cases here at Green & Associates, where unsuspecting borrowers have signed such agreements and then decided not to proceed with the Letter of Offer procured by their broker/lender only to have caveats immediately lodged over their properties to secure payment of the broker’s/lender’s fees. This can be especially infuriating for borrowers who are often seeking finance elsewhere or are attempting to sell their properties – processes which are immediately de-railed when caveats get slapped on by their financiers.
Having a caveat on your property is debilitating because it prevents the sale of your property until such time as the caveat is removed and can often prevent you from obtaining finance elsewhere.
So what should you do if you find yourself in the above situation?
First of all, you should scrutinise the wording of your agreement with your broker/lender to determine whether the relevant clause actually gives rise to the proper caveatable interest. Unless the agreement has a ‘charging’ clause which grants the broker/lender a charge over your property as security for performance of an obligation (i.e. procuring a letter of offer) then no caveatable interest arises and the broker/lender will be liable to you for loss or damage you suffer as a result of the caveat as per s 74P of the Real Property Act 1900 (NSW) (‘the Act’). If there is no such charging clause, rejoice! You can notify the party who has lodged the caveat that they have done so illegally and threaten legal action should they not withdraw it immediately.
This brings us to the first method for caveat removal – the caveator agreeing to withdraw their caveat. This requires the lodgement of a simple form via PEXA which is usually processed and registered by the NSW LRS within a day or two making this a cheap and effective option. You may have to enter into a Deed of Settlement and Release with the caveator if you go down this route which is essentially an agreement that you will waive all future claims against the caveator in return for the withdrawal of the caveat.
The next method to withdraw a caveat should formal withdrawal not be forthcoming is to issue the caveator with something called a ‘lapsing notice’ under s 74J of the Act. A lapsing notice puts the onus on the caveator to successfully defend their caveat in the Supreme Court or else the caveat will lapse within 21 days of it being served on the caveator. The Court will look at whether there is a serious question to be tried (i.e. does the caveator have genuine claim) and whether the balance of convenience favours the caveat being extended. You will be summoned to appear before the Court and may incur costs in the proceedings. Usually, service of a lapsing notice and the ‘ticking clock’ it provides are enough to get the caveator to at least negotiate with you which provides opportunity for the purported secured debt to be reduced and/or waived entirely.
Should you have to remove a caveat urgently (i.e. you need to sell your property and the date for completion is fast approaching), you can make an application to the NSW Supreme Court for the caveat to be removed by court order under section 74MA of the Act. As above, the onus will be on the caveator to prove their genuine claim and satisfy the balance of convenience test. You can apply for such an order ex parte (i.e. without the other side being present) and can even get the Court to waive the requirement that you serve your application on the caveator. This option should be pursued if the caveator will not agree to formally withdraw their caveat and your need to remove the caveat is particularly urgent. This option will involve having to brief a barrister so your expected legal costs will be high.
At Green & Associates, we are experienced in negotiating with caveators and can assist you in removing caveats and helping your re-take control of your property and finances
