Can a tenant lodge a caveat to prevent dealings with land by a mortgagee?

  • Author : Bill Stark - 27-03-2014

Does a tenant have a right to lodge a caveat to protect its interest as tenant?

Further to my 3 posts about the case of Mason v Mendonca (Who will win a priority dispute between a mortgagee and a tenant (Parts 1, 2 and 3)), that saw a determined purported tenant seek injunctive relief all the way to the High Court, the saga was temporarily reactivated in January 2014.

The purported tenant had lodged a caveat on the basis of the alleged tenancy.

After the injunction was refused by the Supreme Court (which was confirmed by the Court of Appeal and the High Court), the mortgagee sold the mortgaged property at a public auction on the basis that at settlement, the property would be vacant.

Despite not obtaining an injunction, the tenant initially refused to withdraw the caveat.


 

Ultimately, further proceedings before the Supreme Court saw orders being made by consent that the caveat would be withdrawn, and the settlement of the mortgagee sale was able to proceed.

The case highlights the fact that the interest of a tenant in possession is one of the exceptions to the concept of indefeasibility of title provided for in section 42 of the Transfer of Land Act, 1958.  

Estate of registered proprietor paramount
Section 42 of of the Transfer of Land Act, 1958 provides in part:


(1)     Notwithstanding the existence in any other person of any estate or interest (whether derived by grant from Her Majesty or otherwise) which but for this Act might be held to be paramount or to have priority, the registered proprietor of land shall, except in case of fraud, hold such land subject to such encumbrances as are recorded on the relevant folio of the Register but absolutely free from all other encumbrances whatsoever,

...
  (2)     Notwithstanding anything in the foregoing the land which is included in any folio of the Register or registered instrument shall be subject to—
       ...
        (e)     the interest (but excluding any option to purchase) of a tenant in possession of the land;


In Victoria, it is not common practice for tenants to lodge caveats on the title to the property that they are renting. However, it is clear a tenant in possession of the property does have the right to lodge a caveat in certain circumstances.

In circumstances where there is an impending mortgagee auction, and the lawyers for the mortgagee refuse to acknowledge the tenant's interest, it may be appropriate for the tenant to lodge a caveat to notify potential purchasers of the tenant's interest in the property.

Complications arise in circumstances where the lease is created after the mortgage, and the mortgagee has not consented to the tenancy. In those circumstances, the mortgagee's rights will take priority over the tenant's rights.

With the High Court ruling that the liquidator of a landlord can disclaim an onerous lease (in Willmott Growers Group Inc v Willmott Forests Ltd (recs and mgrs apptd) (in liq) (2013) 304 ALR 80; [2013] HCA 51 ), the rights of tenants are already under threat when a landlord is insolvent.

It is therefore imperative, in my opinion, that the lawyers for any potential tenant take all available steps to protect the future tenancy. For example, good commercial practice requires the potential tenant's lawyers to seek the mortgagee's written consent to the lease prior to the entry into the transaction, to secure the future tenancy.

About the Author

Bill Stark

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