What Exactly Is A Caveat?
It’s not unusual in New Zealand to come across a caveat on a property.
For some seeing the word caveat immediately activates the internal warning bells, conjuring up images of warring neighbours, family disputes or previously dodgy dealings. But rest assured this is rarely the case. As with anything the best way to dispel a myth is to get curious, get to the bottom of things & understand how caveats work.
In Latin ‘caveat’ means ‘let the person beware’, which certainly sounds a little ominous.
Generally, the purpose of a caveat is to advise interested parties that someone (the Caveator) has claimed an interest in the land. That interest maybe in relation to security, as in when we borrow money and the property is used as a form of security, or in relation to proprietorial interest where you may have ownership or entitlement to the property.
The effect of a caveat is that the owner can’t enter into any dealings in regards to that property without the caveator’s consent.
There are many reasons a caveat maybe lodged including:
- Personal purchasing a property with an unconditional Sale & Purchase Agreement wanting to protect their interest
- Someone has entered an unregistered lease agreement for the property
- Neighbours with a right of way
- Beneficiaries of a trust who have an entitlement to the property
- A property is part of a contested estate or marital dispute
- Someone has been granted an option to purchase the land
- Water use rights
- Private loan between friends
However, there are clear guidelines around who can lodge a caveat as outlined by LINZ (Land Information New Zealand) the most important of which is that no one can lodge a caveat without having a ‘caveatable interest’ in the property. Some of the common types of caveatable interests are:
- A mortgagee’s interest under an agreement to mortgage – such as a bank or alternative lending service
- A mortgagee’s interest when the mortgage is unregistered
- A purchaser’s interest under an agreement for sale & purchase
- A lessee’s interest under an agreement to lease or an unregistered lease.
DIFFERENCE BETWEEN A CAVEAT & MORTGAGE
By now you maybe wondering what is the difference between a caveat & mortgage when it comes to a property & lending? Basically, as mentioned earlier a caveat is an indication that another party has an interest in a property, however this interest hasn’t been formally registered. Whereas a mortgage is a way of formally registering a financial interest in property and is recorded by Land Information New Zealand (LINZ) directly on the properties Certificate of Title.
So, you maybe asking yourself what should I do if I encounter a caveat or find myself in a position of wanting to register a caveat? This is where the advice of a good lawyer dealing directly in property conveyancing is invaluable, they will be able to guide you through the process & any complexities that may arise. If you’re not sure where to start give us a call, we have a number of reputable lawyer’s we’d be happy to put you in contact with*
*Note: we receive no financial benefit for referring you to external parties, our only interest is to ensure our clients have access to good quality advice in all aspects of their financial dealings.