“A what?” “Yes, a Caveat!”
First off, what is Caveat? According to Lexico Dictionary, caveat means:
“A warning or proviso of specific stipulations, conditions, or limitations.”
What does this “warning” have to do with property law?
Well, to put it simply, it means to prevent any further dealings on the land in the legal context.
3 Types of Caveat in Malaysia:
A caveat can be divided into three branches, that is Registrar’s Caveat, Lienholder’s Caveat, and Private Caveat.
1. Registrar Caveat
It is entered by a registrar of Titles or Land Administrator. It is an official caveat entered on the Register Document of Title at the discretion of the Registrar of Titles where it appears to him to be necessary or desirable. The circumstances where the Registrar would enter a caveat is laid down in S.320 of the National Land Code 1965 such as to prevent fraud, improper dealings of the land, and protecting the interest of the Federal or State Authority. Such a caveat will be in force forever until and unless the Registrar removes it.
2. Lien Holder Caveat
It is a caveat usually entered by a financial institution (Maybank, Hong Leong Bank, CIMB…). Firstly, let’s dissect the term for our better understanding. A lienholder is the lender, such as a bank, with legal interest in your property until you successfully pay off the full sum of loan. When your property is mortgaged, specifically where you put your property as security when taking out a loan, the lender is entitled to enter a Lienholder caveat. Having the effect of restricting the dealing relating to the property, the lender’s interest will be protected by selling off the property in satisfaction of the debt in the event that you defaulted.
For the purpose of this article, we will be focusing more on Private Caveat because I’m pretty sure that is what the majority of you are here for!
3. Private Caveat
It is lodged by any private individuals who have a “caveatable interest”.
Caveatable Interest in Property Law
Are you eligible to apply for a caveat?
This would depend on whether you fall under any of the categories listed in S.323(1) of the National Land Code 1956:
(a) any person or body claiming title to, or any registrable interest in, any alienated land or undivided share in any alienated land or any right to such title or interest;
(b) any person or body claiming to be beneficially entitled under any trust affecting any such land or interest; and
(c) the guardian or next friend of any minor claiming to be entitled as mentioned in paragraph (b).
Alright, you must be confused at this point, but let me clarify for you! 😀
Simply put, it is usually the one that entered into a sale and purchase agreement (SPA) who is claiming a right to title that has caveatable interest (as seen in case of Macon Engineers BHD v Goh Hooi Yin [1976] 2 MLJ 53). A cautionary note is that you must have entered the SPA, merely negotiating to enter a SPA would not give rise to a caveatable interest (Million Group Credit S/B v Lee Shoo Khoon and Ors [1986] 1 MLJ 315).
Some other scenarios include but by no means exhaustive:
- When the owner of the property has granted you an option to acquire the property sometime in future (Sing Lian Express Sdn. Bhd v Soh Kim Tee [1974] 2 MLJ 24)
- When you are acquiring the property for someone else under trust (Brett Andrew Macnamara v Kam Lee Kuan [2008] 2 MLJ 450).
- When you are not the legal owner but have rights to the benefits of the property (Chin Cheng Hong v Hameed & Ors [1954] 1 MLJ 169).
So if you apply for a caveat, you are known as the Caveator. The person you lodge against is known as the Caveatee.
The purpose of Private Caveat
You may be wondering by now, “why should you spend tons of money for this clause” or “is the lawyer trying to earn more money off me?” Hold your horses before filling your mind with these thoughts, let me explain why it is so essential! 🙂
Have you thought about how to protect the 10% deposit of the purchase price that you paid? What if the seller defrauds after receiving the deposit and subsequently sells off the property to someone else before you receive the title? This scenario is known as the Cash buyer situation, where you purchase the property with your money, without getting any financial aid from the bank.
Let me give you an example,
Chong is the purchaser. He wants to buy a property owned by Anne. (Therefore, Anne is the seller). He used his own money without obtaining any mortgage to buy the property. If such were the case, Chong is advised to enter a caveat against Anne, so that Anne could not sell the property to someone else.
As seen from the example, this clause comes in handy to mitigate the risk of Anne defaulting. The caveat will effectively prevent the seller (Anne) from making any dealing in relation to the land when you enter the sale and purchase agreement.
Having a caveat is akin to marking the property as yours, it acts as a formal legal notice to the world that you have an interest over the property. With that, you can secure the property, given that your consent must be obtained before any dealing on the land can be executed.
Another reason why your lawyer encourages you to have a caveat is because your rights will be protected.
For example,
Chong and Anne are married couples. However, the house is only registered under the name of Anne. Nonetheless, Chong pays all the bills, renovates the house, and pays a sum of money for the purchase price. Chong is therefore regarded as having beneficial interest in the property. (in other words, your name is not registered in the title but you maintain the right to benefit from the property.).
By entering a caveat against Anne, Chong doesn’t need to worry about getting kicked out of the property out of sudden as there would be no dealings in respect of the property that can be done without Chong’s consent.
Can you see how important it is to lodge a caveat now?
However, there are some situations where lodging a caveat would be unnecessary. For example, the mortgagee (typically the bank or the lender) would have already entered a caveat to protect their interest. This would mean that the seller could not freely transfer to anyone else as they are already restricted by the caveat. Nevertheless, there is no one refraining you from entering a caveat if you want to feel extra safe!
How to enter a private caveat?
- Fill in Form 19B
- Attached with a prescribed fee.
- Specify the nature of the claim on which the application for the entry of the caveat is based.
- Upon receipt of the Form 19B, the Registrar will exercise its purely administrative role by taking note of the time the caveat is being registered.
- The Registrar would endorse the words ‘private caveat’ on the registered document of title together with a statement specifying whether the caveat shall be binding to the land or particular interest, name of the caveator and the effective date of the caveat.
How long will the private caveat be effective?
A private caveat will be effective for six years. (S.328(1)).
Can you withdraw a private caveat?
Under S.325, a caveator may withdraw a private caveat by filling Form 19G with the prescribed fee.
How to remove a private caveat?
You may be familiar with auction property by the bank or High Court. This is where the owner of the property fails to settle their mortgages of the property. The bank will then auction the property. If you decide to purchase an auction property, it usually comes with encumbrances such as having a caveat. In this case, the title could not be transferred to you because the caveat prevents any dealings relating to the property. You are then left with one option – removing the caveat.
Process of Removing the Caveat
Under S.326, a caveatee may apply to the Registrar to remove the caveat using Form 19H. A notice (Form 19C) will then be served to the caveator. Upon receiving the notice, time starts running against the caveator for 2 months to obtain a judgment from court to maintain the caveat (The court proceedings can be a complex and lengthy process! Feel free to seek us for assistance 🙂 ). Once the 2 months have lapsed, the caveat will be removed. As such, the caveator will be barred from entering a private caveat on the same ground as previous (S.329(2)).
I sincerely hope that this article gives you a greater insight on the topic of Caveat. Of course, if you have any further issues to clarify, drop us an email at general@tyllegal.com.
BY KU SUET YENG, MICHELLE
Note: This article is for reference only and does not constitute legal advice. Therefore, if readers have any legal questions or needs, they should seek professional legal advice. If the reader suffers any loss by relying on this article, the author will not be held responsible.
