Beware of Lapsing Notices and tight timelines to Extend NSW Caveats

Written by Alexander Demlakian

Within a business-to-business transaction, protecting your contractual rights is essential – especially those involving an equitable interest in land. Where a land owner may default on any contractual obligations, the second party has the right to register a caveat.

In relation to NSW, matters involving caveats involving lapsing notices are becoming more prevalent, therefore as part of our latest Insights articles, we have highlighted where these may take affect and potential steps involved in extending a caveat within the NSW courts system.

What is a Lapsing Notice?

A ‘Lapsing Notice’ is a form and legal mechanism by which registered proprietors and/or registered interest holders in a property that is affected by a caveat may make an application to the Registrar General under section 74J of the Real Property Act 1900 (NSW) (RPA) for the preparation of a lapsing notice to be served on the caveator who has lodged the caveat.

A registered proprietor or stakeholder in a property may lodge a lapsing notice for a variety of reasons. The more common reasons are that the registered proprietor challenges the underlying validity of the security interest giving rise to the lodgement of the caveat such as an incorrectly signed agreement creating the security interest or an incorrect party.

A further reason which is often utilised by a mortgagee or receiver seeking to sell a property is to lodge a lapsing notice on the basis that there is an impending sale or other dealing with the property and the caveat needs to be removed to allow settlement to proceed. 

What to do when you have been served with a lapsing notice?

Firstly, you will need to decide whether or not you wish to allow the caveat to lapse or alternatively whether you would like to oppose the lapsing notice and seek to maintain your security interest and therefore your underlying caveat on the title of the property.

When you have been served with a Lapsing Notice in relation to a caveat that you have previously lodged on the title of a New South Wales property, the legislative requirements are strict and you will need to act fast if you are seeking to oppose the lapsing notice and extend the caveat protecting your underlying security interest giving rise to the lodging of the caveat.

What happens if I don’t respond to the lapsing notice?

If you do not respond to the lapsing notice, or fail to respond to the lapsing notice within the stipulated timeframe, your caveat will lapse meaning your security interest and caveat against the property will be lost and the caveat subsequently removed from the title of the property. The Court is unwaveringly strict on the adherence of deadlines in seeking to extend a caveat. Simply put, if you don’t file an application within the stipulated timeframe the Court will not consider your application.

If it is your intention to allow the caveat to lapse, then doing nothing is the most cost-effective viable option.

What do I do if I want to maintain my caveat?

It is important to note at this juncture that if you seek to oppose the lapsing notice, you will be required to commence legal proceedings in the form of an urgent application to the Supreme Court seeking in the first instance, interim orders to maintain the caveat to allow the Court to determine whether the lapsing notice should proceed, and in the second, orders to ultimately extend the caveat and seek declaratory orders as to the validity of the underlying security interest giving rise to the caveat

Issuing Correspondence to the Registered Proprietor

It is important to contact the registered proprietor or their legal representation who has issued the lapsing notice and advise of your intention to extend the caveat. This includes formally placing the registered proprietor on notice that if the lapsing notice is not withdrawn, you will be proceeding with your application to the Supreme Court to extend the caveat.

If the registered proprietor has proceeded by the appropriate path in accordance with the Supreme Court Practice Note, prior to the issuing of the lapsing notice you should have received correspondence from or on their behalf with details as to the intention to lodge a lapsing notice and detailing the grounds to do so. This correspondence would reflect the registered proprietors desire and reasoning for the removal of your caveat and either propose some form of offer to induce you to the removal of your caveat, or advising you of their intentions and position opposing your underlying security interest and therefore ultimate right to lodge a caveat.

When you receive correspondence of this nature, it is important to respond with your position as this can benefit your position in the event that you have to commence legal proceedings to extend the caveat.

Whilst the lapsing notice identifies that you have 21 days to oppose the lapsing notice and extend the caveat, it is important to understand what exactly needs to take place in those 21 days to extend the caveat.

It is a requirement in the practice note that any application for the extension of a caveat be made no less than five days before the expiration of the lapsing notice.

This means that you have until the 14^th day to have issued correspondence to the registered proprietor and filed your application with the Supreme Court.

The Application & Support Affidavit

Your application to extend a caveat should be made to the Supreme Court of New South Wales pursuant to section 74K of the RPA.

The application should be made in the form of summons accompanied by a supporting affidavit.

This application is a request to the Court for an interlocutory injunction which maintains the caveat on the property and restrains the registered proprietor(s) from dealing with the land in anyway pending a trial in respect of the validity of your security interest and right to maintain your caveat.

As outlined above, when you file the Court proceedings to extend the caveat after receiving a lapsing notice, you will also need to prepare a detailed affidavit addressing your position and outlining the key facts giving rise to your underlying security interest and subsequent lodgement of your caveat this includes attaching a copy of the written agreement evidencing the security interest to your affidavit.

Court has granted Orders what do I do?

If the Court has granted you orders to extend your caveat on an interim basis, it is imperative that you must lodge these orders with the Register Generals Office via the New South Wales Land Registry Services (LRS). These orders must be lodged within 21 days of receiving the lapsing notice. 

My Caveat Lapsed, What Can I Do?

In the event you failed to lodge your application in time, or a step was omitted, or an oversight occurred and your caveat subsequently lapsed either before or during proceedings it is important to be aware that your caveat can not be reinstated.

That does not mean that you do not have options available, however the Courts have been quite clear on the fact that a caveat cannot be reinstated for the same security interest on which it was initially registered nunc pro tunc (retroactively to correct an earlier ruling) see Hanover Investments v Registrar General [1999] NSWSC 21

If you are seeking to reinstate the caveat based on a security interest for which a caveat has already been lodged and then lapsed then this can only be achieved by seeking an order from the Supreme Court via an application pursuant to section 74O of the RPA.

The process of opposing a lapsing notice comes with a requirement to act very urgently and can attract significant legal costs. Should you be served with a lapsing notice, ensure that you act promptly and seek legal advice as soon as possible to ensure you are protecting your interests.