Beware lodging caveat ‘without reasonable cause’

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Section 118 of the Transfer of Land Act 1958 and s.74P of the Real Property Act 1900 (NSW)  provide for payment of compensation to a party who has suffered “damage” (TLA) or “pecuniary loss” (RPA) where a person lodges a caveat “without reasonable cause”. In New South Wales s.74P also extends to a caveator who, without reasonable cause, refuses or fails to withdraw a caveat after being requested to do so. See: s.74P(1)(c).

As to the meaning of “reasonable cause” in Bedford Properties Pty Ltd v Surgo [1981] 1 NSWLR 106 Wootton J said at 109:

The drastic nature of the power is relevant in considering what is “reasonable cause” for its use, just as the dangerous character of a thing is relevant to deciding what is reasonable care in handling it. Before exercising such a power, a person can reasonably be expected to get proper advice, and be reasonably sure of his ground. If he does not, he may find that he has acted at his peril. This is all the more so when he knows, as Mr Richards knew, and indeed intended, that his action will prevent an important transaction involving a large sum of money.

In the recent case of  Arkbay Investments Pty Ltd v Tripod Funds Management Pty Ltd [2014] NSWSC 1003  Robb J said that it was “salutary to record” Wootton J’s observations in deciding that a caveat had been lodged without reasonable cause and had caused pecuniary loss.

In Arkbay there was no evidence that when the caveator lodged the caveat it had an honest belief on reasonable grounds that it had an interest in the relevant property. His Honour held that the lodging of the caveat had caused loss by reason of a delay in the settlement date for sale of the property.

At [17] Robb J said:

“The onus is on the plaintiffs to show that the caveator acted without reasonable cause. For there to be reasonable cause it is not necessary that the caveator actually have a caveatable interest, but it is necessary that the caveator have an honest belief based upon reasonable grounds that the caveator has such an interest. Wootton J in Bedford Properties noted at 108  that an honest belief on the part of the caveator based on reasonable grounds may not be sufficient to provide a reasonable cause for lodging or maintaining a caveat, if the caveat is lodged “not for the protection of his interest but for an ulterior motive and without regard to its effect on transactions to which the caveator had agreed.”

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From 31 July 2014, liability limited by a scheme approved under Professional Standards Legislation 

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Is a purchaser of land bound by covenants in a lease?

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When premises are sold the question often arises as to whether a tenant can enforce  covenants contained in the lease against the new owner?

At common law, unaffected by statute, an assignee of the reversion is not bound by any of the covenants and conditions of the lease. See: In re Hunter’s Lease [1942] 1 Ch 124 at 128.

In Victoria, s 142 of the Property Law Act 1958 altered this position and an assignee of the reversion is bound by covenants contained in the lease that “touch and concern” the land.

In Specialist Diagnostic Services Pty Ltd v Healthscope Ltd [2010] VSC 44 Croft J held that a restraint of trade clause contained in a lease did not “touch and concern” the leased land and therefore did not bind the assignee of the reversion.

The case contains a detailed analysis of the type of covenants that “touch and concern” land (see [52] – [67]). In broad terms any covenant that affects the landlord as a landlord or the tenant as a tenant will probably be within the class of covenants that touch and concern the land.

 

See: Bradbrook, Coft & Hay Commercial Tenancy Law, 3rd ed, paragraph 15.20, p. 483.

 

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