Caveats in eConveyancing – the value of check searches

LPLC sees claims in conveyancing transactions where practitioners have failed to identify that a caveat has been lodged over a property after the contract of sale of land is entered into, and before settlement.

In one claim, a caveat lodged a few weeks before settlement was missed because the parties overlooked an automated positive Title Activity Check (TAC) generated by the PEXA system and did not do a final or check search to confirm clear or good title before completing settlement. The purchaser’s solicitor had incorrectly assumed that if a caveat was lodged before settlement, this would automatically prevent settlement from taking place. The PEXA process will not prevent settlement when caveats are lodged. So, settlement went ahead without anyone dealing with the caveat and the transfer to the purchaser was unable to be registered. The purchaser was then drawn into costly legal proceedings commenced by the caveator and a professional negligence claim was made against their solicitor.

Had the purchaser’s solicitor investigated the positive TAC and/or conducted a final or check search before settlement, they would have discovered the caveat. This would have allowed the purchaser’s solicitor to take appropriate action to protect the interests of their purchaser client such as confirming that the vendor would provide a withdrawal of caveat at settlement.

This claim highlights the caution that must be taken by practitioners to check activity on a title before settlement. Do not solely rely on automated electronic processes. It is best practice to always carry out up-to-date title searches and do a final or check search just before settlement.

The PEXA system carries out automated Title Activity Checks which look for any activity on a land title in a PEXA workspace. If there has been any new activity on a title, then the workspace will return a positive TAC.

PEXA has published a Title Activity Checks guide on its website providing guidance and instructions on how to use the TAC system. Once a workspace is created in PEXA, an initial TAC is run which will provide details of any activity that has occurred in the 60-day period prior to it being run. For workspaces with financial settlements, TACs are then run automatically at specific intervals as follows:

• once a week when the transaction is one month from the settlement date.
• once a day when the transaction is one week from the settlement date.
• on the day of settlement, once in the morning (between 4 and 5 am) and again 55 minutes prior to the scheduled settlement time. PEXA’s guide provides that if a Workspace does not have a financial settlement or does not have a settlement date and time set then no automated TACs will run after the Workspace is created.

When there is a positive TAC, an email notification will be sent to all participants in the workspace. The positive TAC will also be noted in the ‘Perform Title Activity Check’ field of the Land Titles Screen. Practitioners can set up the PEXA workspace so that notifications of title activity are sent to all staff working on the transaction.

An important feature of TAC’s, and an area of risk for practitioners, is that a TAC only notifies activity that has occurred since the last TAC was run — it will not provide a cumulative history of all title activity. For example, let us assume that a caveat has been lodged on a land title 20 days before settlement. A positive TAC will only be displayed once in the first TAC run after the caveat was lodged and will not appear in the subsequent weekly and daily TAC’s which are run to settlement.

Further, only a TAC run 55 minutes before settlement that shows activity on a title will require acknowledgment from the incoming transferee and mortgagee before settlement may proceed. No acknowledgement is required where a caveat or encumbrance is detected in an earlier TAC.

It is therefore important that practitioners and staff under their supervision carefully check each TAC.

Practitioners acting for purchasers have a duty to check the title of the property being purchased and take steps to prevent settlement occurring if a caveat or other encumbrance is lodged and in respect of which no arrangements for removal/withdrawal have been made.

It is therefore prudent conveyancing practice to always conduct and review up to date title searches to check the title and if there have been any dealings prior to settlement. TAC’s on PEXA should not be viewed as a replacement for this exercise.

A small investment in obtaining title searches can potentially avoid a big exposure for your client and the firm. A failure to identify caveats, writs, mortgages or other dealings can lead to a settlement of the client’s property without clear title, unintended financial consequences as well as a possible professional negligence claim.