Should I Lodge a Purchaser’s Caveat?

When purchasing property, buyers often seek assurance that their interests are protected prior to settlement.  In certain circumstances, lodging a purchaser’s caveat may provide that protection.

What is a caveat?

A caveat is a formal notice recorded on the title of a property, advising third parties that someone claims an interest in the land.  Once lodged, a caveat will generally prevent the property from being sold, transferred, mortgaged, or otherwise dealt with until the caveat is withdrawn, removed, or lapses.

What is a purchaser’s caveat?

A purchaser’s caveat is a caveat lodged by a buyer after a contract for the sale of land has been entered into but before settlement occurs.  Its purpose is to protect the buyer’s interest in the property by preventing the seller from dealing with the property in a manner that may adversely affect the buyer’s rights, such as selling or mortgaging the property to another party.

Does a buyer automatically have the right to lodge a caveat?

No.  A buyer may only lodge a purchaser’s caveat if they have a valid “caveatable interest” in the property.  In Western Australia, a purchaser under a binding contract for the sale of land will often have an equitable interest capable of supporting the lodgement of a caveat.  However, whether such an interest exists will depend on the terms of the contract and the particular circumstances of the transaction. 

Merely intending to purchase a property or participating in negotiations will not, by itself, give rise to a caveatable interest.

What are the risks of lodging a caveat?

A caveat should not be lodged without proper legal grounds.  If a caveat is subsequently found to be invalid, the person who lodged it may be liable for any loss suffered by others as a result. 

For example, an improperly lodged caveat may delay a settlement or refinancing transaction, potentially giving rise to a claim for damages.  A seller may also apply to have the caveat removed and seek recovery of their legal costs.

For these reasons, legal advice should always be obtained before lodging a caveat.

Is a caveat always necessary?

Not necessarily.  Many residential property transactions proceed to settlement without a caveat being lodged.  Whether a caveat is appropriate will depend on the specific circumstances of the transaction and the risks involved.  

Key takeaway

A purchaser’s caveat can be an effective mechanism for protecting a buyer’s interest in a property before settlement.  However, it may only be lodged where a valid caveatable interest exists.  Lodging a caveat without proper legal grounds may expose a buyer to significant risk, including potential liability for losses suffered by others.

If you are concerned about protecting your position prior to settlement, obtaining legal advice at an early stage can help determine whether lodging a caveat is appropriate and whether alternative options may be available.