Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "commercial property question". This week's question is answered by senior associate Daniel Kelleher and associate, Stef Jang who can be contacted at daniel.kelleher@simpsongrierson.com and stef.jang@simpsongrierson.com
Q. I own a construction company. Last year we undertook a job and have never been paid. I have followed all the procedures set out in the Construction Contracts Act with no issues raised by the property owner. Recently I obtained a charging order for the sum owing and have registered that against the title to the property. I then told the owners that unless they paid the outstanding amount soon, I had been advised to get a writ of sale. I understand that this allows me to sell the property. The owners have responded by saying there is a caveat noted on the title that will prevent any sale. I have searched the title and there seems to be a caveat registered by a relative of the owner protecting a loan agreement but after the charging order. Is the owner correct in saying this prevents me selling the property under the writ of sale? How would I go about dealing with the caveat?
A. The existence of the caveat will not prevent you from selling the land and recovering your debt if you can get the caveat removed from the Certificate of Title. However, until the caveat is removed, you will not be able to get an order allowing you to sell the land.
A caveat is a statutory notice that is registered against the Certificate of Title to land. It serves as notice to anyone who searches the title that the person lodging the caveat has an interest in the land that must be addressed before the land can be dealt with. The primary purpose of most caveats is to prevent a sale or disposition of land until the person with the alleged interest in the land has had their claim resolved. These are known as caveats against dealings and will theoretically prevent you from selling the land and recovering your debt.
However, there are ways to deal with a caveat. The best method is to get the person who registered the caveat to agree to remove it. If that method fails you can apply to the court to have the caveat removed. However, to be eligible to do so, you will need to be either the owner of the land or a person with a "registered interest" in the land.
The term "interest" is defined in the Land Transfer Act (LTA) to mean every estate in land and also any mortgage or charge on land under the LTA. Since the interest represented by the charging order is not an estate in land, or a mortgage on land, it must qualify as a "charge" on land for you to be able to apply to the court for the caveat's removal.
A "charge" is not defined under the LTA. A well established definition is that a charge is a form of security where property is appropriated for the discharge of a debt or other obligation. In general, ownership in the property does not pass to the creditor, nor does the creditor get any right to possession. And in the event of non-payment of the debt, the creditor's right to realise the debt is usually carried out through a judicial process.
In a recent High Court case, the court held that a charging order is a charge on the land, and, as such, comprises an "interest" in the land in terms of the definition in the LTA. This is because a charging order charges the owner's land with payment of the amount for which the other party has obtained judgement. While it does not give the charge holder property in, or possession of the land, it entitles the holder to apply for a sale order to complete execution. This is different from a charging order (not registered against the Certificate of Title) in a bankruptcy situation where a creditor who has the benefit of a charging order may be vulnerable to the Official Assignee where the judgement debtor is in insolvency or winds up. Since the charging order was registered ahead of the caveat, the courts are likely to give your interest in the land priority and remove the caveat.
The information contained in Commercial Property is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.
