Strategic considerations in response to lapsing notices 

As set out in Part I of this TurkAlert, if you have registered a caveat over property in New South Wales in reliance upon a charging clause and you receive a lapsing notice issued by the land owner, you have 16 days to take several steps, including applying to the NSWSC for an extension order.

In addition to requiring a caveator to give the Duty Judge no less than five days’ notice of an application, the NSWSC’s Practice note prompts caveators to take several steps before filing an extension application. These steps must be completed within 16 days of being served with the lapsing notice, reinforcing the need to act quickly to obtain support from experienced lawyers.

Step 1: Offer to remove the caveat in exchange for settlement of debt

Usually, the first step to be taken in response to a lapsing notice is to send correspondence to the landowner or their solicitor, outlining the charge over the land and advising that the caveator objects to the caveat being removed unless an arrangement can be made for repayment of the debt owed to them.

Step 2: Negotiate an injunctive relief regime

If settlement cannot be achieved, the caveator’s solicitors should then inform the landowner they are initiating proceedings to establish the caveator’s interest in land.

The caveator should also attempt to negotiate an injunctive relief regime with the landowner’s solicitors.

An appropriate regime will include orders that operate to extend the caveat until the final hearing of the claim and can include an undertaking from the landowner.

Step 3: Apply to the court for an extension of caveat

If the parties are unable to agree on terms for injunctive relief, the caveator should proceed to file a summons and supporting affidavit in order to protect and extend the caveat.

Benefits

The steps set out in the Practice note are a reminder of the advantages to be had from a negotiated outcome including:

• agreeing on terms for the repayment of the caveator’s secured debt without having to commence proceedings;
• avoiding the need to obtain orders to extend the caveat by agreeing to an injunctive relief regime, with time and costs savings; and
• establishing a strong claim for costs if the landowner declines to negotiate and final orders are obtained in favour of the caveator.

Considerations of the court in extension applications

In deciding an application to extend a caveat, the court will consider whether:

1. there is a serious question to be tried; and
2. the balance of convenience favours the caveat being extended.

Both questions must be addressed by the caveator in the affidavit supporting the summons.

The first question requires the caveator to fulfil the onus of proving they have a prima facie claim and a caveatable interest in the land.

The second question requires the court to consider the unique circumstances of the case in order to determine whether the factors in favour of granting the relief outweigh the inconvenience to be suffered by the parties if the relief is not granted.

If extending a valid caveat will be counter-productive or serve no useful purpose, the court will not grant the extension. This can occur:

• where a mortgagee exercises a power of sale and there is evidence the sale proceeds will be insufficient to discharge the mortgage, meaning there is no prospect of there being any surplus proceeds available at settlement to meet the claim of the caveator; or
• where following a mortgagee sale, there is a surplus available but there are other caveators competing for the proceeds. In these circumstances, if the mortgagee gives an undertaking to pay the surplus into court, the Judge is unlikely to extend the caveat. The rights of the caveators to the surplus as between themselves can be determined in a subsequent application for payment of the funds out of court.

The questions for the court are almost identical to those relating to an application for an injunction. Similarly, the obligation on the caveator bringing an application includes giving an undertaking as to damages. Caveators must be aware of the risk of seeking orders if the basis for the caveat is dubious which could result in adverse orders for costs and damages.

Taking into account the short period of 16 days caveators have to comply with the steps in the Practice note, it is important to seek assistance from skilled legal advisors to negotiate with the landowner, minimise the risk of a compensation order and maximise the prospects of extending a caveat.