Lodging a caveat can be an effective mechanism to get a debt repaid, or money owed.
However it can only be used where the creditors’ debt in some way relates to the actual land owned by the debtor.
If the debt relates to the debtor’s land then the creditor has a ‘registrable interest’ in the debtors land. The creditor can then lodge a caveat with the land transfer office claiming their interest.
Once registered the caveat cannot be lifted without the creditors’ knowledge and/or consent.
Caveats can be effective when used as a debt collection mechanism but dangerous when the debt does not relate to the land in question.
The dangers of using a caveat improperly are shown in the recent case of Solan Heights Ltd v Brown (2015) NZHC25, 23/01/15.
In this case Brown agreed with Solan Heights to buy and remove a shed from Solan Heights land. A dispute arose and Brown lodged a caveat to improve his negotiating position.
Solan Heights’ lawyers wrote requiring Brown to remove the caveat, they said it was unlawfully lodged, (Brown had no interest in Solan Heights land) and that if they had to start court action to have the caveat removed they would seek full costs against Brown.
Brown refused to remove the caveat unless Solan Heights paid him $3,000. Solan Heights started court action.
Justice Venning in the High Court held that Brown had no right to lodge a caveat as he had no legal justification for it, (he had no interest in Solan Heights land - Brown’s claim related to a shed on that land).
Using a caveat improperly as a negotiating tool was an expensive exercise for Brown. Justice Venning ordered him to pay all of Solan Heights legal costs of $17,712.92.
Interestingly the word caveat derives from the latin word for “beware”.