Caveats in PEXA:
Buyers (and solicitors) beware
BY JEN MCMILLAN – MAY 01, 2021 7:30 AM AEST
Snapshot
- Just because settlement of a conveyance is taking place electronically through PEXA does not mean you don’t have to worry about caveats.
- A caveat will prevent registration, but will not prevent settlement and lodgement.
- It is up to the purchaser’s solicitor to check the state of the title and take steps to prevent settlement occurring if a caveat is lodged.
In November 2020, a solicitor was acting for the purchaser of a property in suburban Sydney. What seemed to be a routine settlement took place in early December 2020.
Three months later, the solicitor was contacted by the purchaser client and alerted to the fact the property had not yet been registered in the purchaser’s name. On checking PEXA, it could be seen that the matter was still in lodgement and there was a caveat on title preventing registration of the transfer. The caveator was apparently a secured creditor of the vendor. Further investigation revealed the caveat had been lodged 10 days prior to settlement. There was a notification regarding the caveat on the workspace, but the solicitor had not noticed it, and was surprised that settlement was not automatically prevented in circumstances where a caveat had been lodged.
PEXA confirmed the lodgement of a caveat on title would appear on a title activity check (‘TAC’), but the PEXA process will not prevent settlement where there is a caveat. It is up to the subscriber to decide whether or not to allow settlement to go ahead.
In the days of paper settlements, the purchaser’s solicitor would have undertaken a final search, checked for caveats or writs, and if a caveat had been lodged, would call off settlement until the vendor had arranged a withdrawal of caveat. It seems that with electronic settlements a false sense of security may have allowed the step of checking for caveats to be overlooked by the purchaser’s solicitor.
Title activity checks
In PEXA, the first TAC is initiated when a title is added to a workspace and it is populated with title data. This first TAC advises if any activity has been registered on the title within the past 60 days.
For workspaces with a financial settlement, an automatic TAC will occur at the following stages:
- once a week when the transaction is one month from settlement date;
- once a day when the transaction is one week from settlement date;
- on the day of settlement;
– in the morning (between 4-5am), and
– 55 minutes prior to the settlement time.
A TAC advises whether there has been any activity on title since the last TAC was performed, and positive results are not cumulative in successive TACs. This means that a caveat overlooked in an earlier TAC is not going to be highlighted in the final one. It is only if the final TAC at 55 minutes prior to the settlement time reveals activity that an acknowledgment is required from the transferee and incoming mortgagee before settlement can proceed. No acknowledgment is required if the caveat or other activity was revealed on an earlier TAC, as the subscriber is assumed to be aware of matters recorded in the workspace.
Practice tips for purchasers’ solicitors
- Make sure you have a title search less than 60 days old when a title is added to the workspace so you have a good baseline for TACs. Otherwise a caveat, writ or other affectation could be lodged in the gap between the title search and the TAC coverage, and this would only be discoverable by a title search.
- Ensure your PEXA account is set up so email notifications of title activity are sent. You can also add additional email addresses to the notification screen for each workspace.
- Always check the workspace record of TACs and results.
- If any TAC reveals a caveat, ensure the settlement process does not proceed until the caveat has been dealt with. Do not rely on the PEXA process to prevent settlement.
Be aware of other limitations of a TAC e.g. if acting on a transaction involving a strata or community scheme, PEXA does not perform any TACs on the folio comprising the strata common property or its community schemes equivalent.
This article originally appeared on lsj.com.au