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It is not uncommon for loan and residential construction agreements (or similar) to include a clause noting the lender is entitled to lodge a caveat over land. Sometimes this happens where a borrower deletes the charging provision/s but retains the provision entitling the lender to lodge a caveat.
The question arises whether the lender actually has, in these circumstances, a ‘caveatable interest’ in land for the purposes of section 137 Transfer of Land Act 1893 (WA) (or equivalent provisions in other jurisdictions); perhaps more importantly whether the lender has an effective security interest in the land by reason of the contractual right to lodge a caveat.
Historically the answer to the question was “no”. In more modern times the courts have been willing, on a case by case basis, to imply the grant of a proprietary interest alongside the express contractual acknowledgment of a right to lodge a caveat.
Accordingly, there are three possible outcomes where a document permits the lodgement of a caveat over land without expressly granting a charge (and there is a subsequent challenge to the caveat):
In the recent decision of Swinburne v Bose  WASC 299, the plaintiff sought to extend the operation of a caveat lodged over the defendants’ property. The caveat was lodged after the first defendant defaulted on payments owed to the plaintiff under two loan agreements.
The loan agreements had been drafted without the help of lawyers. The relevant clause in each agreement was:
“If there is any default in repayment for more than 2 months… (the lender) has the legal right to take caveat over… [the property]”.
The interest claimed in the caveat was an ‘equitable charge’.
The questions for the Court were, firstly, whether a provision in loan agreements for a caveat to be lodged upon default in payment granted a caveatable interest in land and, if so, whether the plaintiff’s application to extend the operation of the caveat should be accepted.
The Court noted:
Ultimately the Court decided there was a sufficiently arguable case, the link in the loan agreements between the authority to caveat and the obligation to pay the plaintiff reflected an intention to create an equitable charge. The operation of the caveat was extended.
Main points to take away
This article is general information only, at the date it is posted. It is not, and should not be relied upon as, legal advice. This article might not be updated over time and therefore may not reflect changes to the law. Please feel free to contact us for legal advice that is specific to your situation.