Charging clauses and caveatable interests, some divergent approaches to residential consumer protection in the States and Territories
This paper briefly traverses the different approaches to the law regarding caveatable and charging interests in residential building contracting in three Australian jurisdictions. In keeping with the 8 countries of Australia euphemism, each sovereign jurisdiction differs significantly with respect to the ways caveatable interests are treated within the residential contracting setting.
This writer is only venturing into 3 Australian jurisdictions and hazards to say that there may well be other key differences in the remaining 5 Australian jurisdictions that will alter the risk landscape for consumers. It follows that property owners will need to have regard to the apposite provisions in the relevant acts of parliament in the other States and Territories.
Until the mid-nineties in Victoria, standard industry building contracts contained charging clauses that allowed the residential building contractor to lodge a caveat on owners property in circumstances where there was a dispute under the contract.
Caveats tended to be lodged when there was a dispute over payment but depending on the wording of the charging clause a very broad licence afforded to the caveator was often permitted in the contractual provision.
The charging clause in the building contract gave the contractor a caveatable interest. Once lodged on the title this had the potential to impact upon the property owners` ability to sell the property until the caveat was removed. So it was a significant encumbrance. Caveats sometimes remained on title until the end of a litigation ie months, years down the line.
When the Domestic Building Contracts Act was promulgated in the mid nineties, the legislation embargoed the builder from having the ability to lodge a caveat on the title, so the lodging of a caveat effectively became illegal.
This legislature introduced the embargo to better protect consumers from circumstances where the charge upon the land imposed significant restrictions upon the owner to deal with the land.
The apposite provision under the said Act is:
Domestic Building Contracts Act 1995 (VIC) Section 18:
- Contract does not entitle builder to put caveat on the title of building site land
- A domestic building contract does not give a builder an estate or interest in any land for the purposes of section 89 of the transfer of Land Act 1958.
The provision exercises an economy of language but its import is clear, builders cannot lodge caveats on the property owner’s title, period.
The Home Building Act 1989 (NSW) Section 7D also places some limits on the ability of a residential builder to lodge a caveat. But it has to be said the provision isn’t as pithy, as it were, as the Victorian counterpart and unlike the Victorian legislative provision cannot be considered to provide a blanket embargo as there are exceptions.
- Interests in Land under contract
(1) A contract does not give the holder of a contractor licence or any other person a legal or equitable estate or interest in any land, and a provision in a contract or other agreement is void to the extent that it purports to create such an estate or interest.
(2) Accordingly, the holder of a contractor licence or any other person may not lodge a caveat under the Real Property Act 1900 in respect of an estate or interest prohibited by subsection (1).
(3) However, subsection (1) does not apply to a provision in a contract that creates a charge over land if–
(a) the land the subject of the charge is land on which the contract work is, or is to be, carried out, and
(b) the charge is in favour of the holder of a contractor licence who is a party to the contract, and
(c) the charge is created to secure the payment to the holder of the contractor licence by another party to the contract of money due under the contract, but only if a court or tribunal has made an order or judgment that such payment be made, and
(d) in the case of a charge over land under the Real Property Act 1900 –the party to the contract against whom the judgment or order is made is the registered proprietor of the land.
The court has a discretion to permit the lodging of a caveat in the aforesaid circumstances. In this writers` opinion, Section 7D cannot be considered to be unreasonable as it permits the lodging of a caveat once a judgment or order has been made by the Court. Presumably that would serve to prevent rapid sale of a property consequential upon an adverse judgment and an absconding by the owner with the proceeds of sale to prevent payment to the contractor.
The relevant legislation in the Australian Capital Territory is The Land Titles Act 1925 (ACT) which allows courtesy of Section 104 a person claiming an interest in land to apply to the Land Registrar to have a caveat be entered on that land. The threshold for the initial caveat being placed on the land in question is low under Section 104A(2) with the Registrar ‘not required to determine the validity of a caveator’s claim.’
The legislation does provide a process for a landowner who has had a caveat placed against their land to have that caveat removed. Specifically, Section 107 “Removal of Caveat” requires the landowner to request the Registrar-General to give notice to the caveator for its removal. Once received by the caveator, the caveator has 14 days to seek an order from the Courts that the caveat should remain. The onus at this stage is on to caveator to show that it should not be removed as there is still a serious issue to be tried (GR8 Constructions Pty Ltd v O’Donnell  ACTSC 92 at ).
In weighing up these Australian Capital Territory legislative provisions, it is in the writers’ opinion that they ultimately disadvantage property owners. Firstly, the legislation provides very little barriers to any party claiming a registrable interest in land to have a caveat recorded. Secondly, despite the legislation providing a mechanism for landowners to eventually compel the caveator to make an application to the Courts, the caveat is often likely to remain in place so long as in the Courts’ opinion a serious issue to be heard still remains.
In order of hierarchy Victoria clearly affords the greatest level of consumer protection in light of the fact that there is blanket legislative embargo that prevents the lodging of a caveat by the residential builder on the land title. So Victoria is the gold standard.
NSW does not have a blanket embargo but there are hurdles, the main one being the Court is the body that is invested with the power to permit the lodging of a caveat in the above mentioned circumstances.
The ACT does not fair at all well when compared with the other jurisdictions as it provides much greater licence to given parties to lodge caveats on a property owners title.
If the ACT is intent on providing better consumer protection to property owners it would be well advised to harmonise the legislation on point with either NSW or Victoria. As it stands at the moment from a consumer protection point of view it leaves a fair bit to be desired.
Tsigereda Lovegrove, construction lawyer and practice manager at Lovegrove & Cotton has conduct of matters in Victoria, NSW and the ACT.
Lovegrove & Cotton Construction & Planning Lawyers
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