Caveats & Encumbrances on Commercial Title

Title to commercial property in Australia is recorded under the Torrens system, with each state and territory running its own land titles register. The certificate names the registered owner and lists every registered interest in the land: mortgages, leases, easements, caveats and other encumbrances. It is one of the first documents a buyer reads on a commercial title, and the clearest source of information on how the land can be used, what rights third parties hold over it, and whether any dispute is on foot.

The interests recorded on title fall into a handful of types, each carrying its own effect on value and use, and each demanding a specific response from the buyer before settlement.

Title is what the buyer is actually acquiring. The registered interests show what someone else can do with the land. A clean title is the default expectation; encumbrances should be understood, priced, or removed before settlement.

The Principal Title Interests

Registered proprietor

The land's current legal owner, whether an individual, company, or trustee. This is the party the buyer contracts with.

Mortgages

Registered security interests held by lenders. They are discharged at settlement once the seller repays the loan.

Leases

Registered leases, typically those running more than 3 years. On tenanted commercial property the leases are usually registered and show on title.

Easements

Rights held by others, usually neighbours or service providers, over the land: right of way, right of access, drainage, utility services. They run with the land, so the new owner inherits them.

Covenants

Restrictions on use, generally limiting what can be built or done on the land. A restrictive covenant can be a substantial constraint on redevelopment.

Caveats

A third party's claim of interest in the land. It transfers no ownership but freezes dealings until it is resolved.

1 Caveats Explained

A caveat is a notice on title that a third party claims an interest in the land. The caveator might assert a beneficial interest under a trust, a contractual right, or an equitable interest. It confers no ownership, but it stops the registered proprietor from dealing with the land, whether selling, mortgaging, or leasing for more than 3 years, until the caveator's claim is resolved.

Common reasons for caveats

• A previous unsuccessful buyer claiming a beneficial interest under a contract.
• A spouse or family member with potential family law interests.
• A creditor with a court order or claim.
• A trust beneficiary claiming under the trust deed.
• An adverse possession claimant.

Effect on the buyer

A caveat on title at the date of contract usually has to be cleared before settlement. Either the vendor removes it, with the caveator's consent or by court order, or the contract cannot be enforced.

2 Easements

An easement gives a third party the right to use the land for a defined purpose. The common types:

Right of way

The neighbour has a right to cross the land to reach their own property. Common where a back lot has no street frontage.

Drainage easement

The local council or a neighbour can discharge stormwater or sewage through the land, which limits what can be built over it.

Utility easement

Water, electricity, gas, or telecommunications providers can maintain infrastructure across the land. Building over it and excavating near it are restricted.

Access easement

The neighbour has access rights for specific purposes: maintaining their building, a fire escape, light over the land.

Easements run with the land, so the new owner inherits every registered easement. Buyer-side review pins down where each one sits and what it does to current use and future development.

3 Restrictive Covenants

A restrictive covenant binds the use of the land, usually for the benefit of an adjoining or related parcel. Common restrictions:

• Building height limits.
• Setback requirements.
• Use restrictions (no industrial use, no licensed premises, no specific business types).
• Architectural or material requirements.

Restrictive covenants can be substantial constraints on redevelopment. Removing one generally needs the benefitted party's consent or a court order to extinguish or modify it.

4 Mortgages and Discharge

The vendor's mortgage is usually discharged at settlement: the lender hands over a discharge of mortgage in exchange for repayment of the loan. It is registered shortly after settlement, leaving the buyer's title clean.

Buyer-side review confirms the discharge is in train: the vendor's solicitor has spoken to the lender, the discharge fee is agreed, and the timing fits the settlement schedule.

5 Registered Leases

On tenanted commercial property, leases running more than 3 years are usually registered on title. A registered lease binds the new owner, so the buyer takes subject to its existing terms.

Buyer-side review sets the registered lease, the legal document, against the disclosed lease the vendor has supplied and the tenancy schedule that summarises what the vendor says is in place. Any discrepancy is a flag for further investigation.

6 Other Registered Interests

Building agreements

Local council building agreements covering permitted use, density, or special conditions imposed by planning consent. They run with the land.

Section 88B instruments (NSW)

Documents recording the covenants and easements created at subdivision. Read alongside the title.

Strata plan

For strata lots, the strata plan sets the lot boundaries and common property. Read together with the strata title certificate.

7 Buyer-Side Title Review

1. Title search. Current certificate of title with every registered interest.
2. Underlying documents. Copies of the registered easements, covenants, leases, and other instruments the title refers to.
3. Plan review. Survey plan showing easement locations and lot boundaries.
4. Section 10.7 certificate (NSW) or equivalent. Local council planning certificate showing zoning, overlays, and constraints.
5. Cross-reference. Title interests checked against the building, planning, and tenant disclosures.
6. Solicitor review. Legal review of every interest and what it means.
7. Action items. Caveats to remove, easements to relocate, covenants to modify or accept.

8 Common Buyer-Side Issues

Caveat blocking settlement

A caveat the vendor cannot clear before settlement leaves the contract unenforceable. Either the vendor resolves it or the buyer terminates.

Easement materially affecting use

An easement that was not disclosed during marketing but materially affects the building's use or development potential. Grounds for a price adjustment or termination.

Restrictive covenant limiting redevelopment

A covenant that blocks a planned redevelopment. Grounds for termination or a reworked redevelopment plan.

Discharge not arranged

The vendor's mortgage discharge is not organised with enough time before settlement. The buyer's solicitor chases confirmation; standard practice is to require evidence that discharge is arranged.

Frequently Asked Questions

Can I lodge a caveat to protect my purchase?

Yes. The buyer can lodge a caveat on contract signing to protect the equitable interest until settlement. Standard practice on substantial commercial transactions.

Are unregistered interests binding?

Some unregistered interests can bind a buyer in specific circumstances, for instance an unregistered lease under 3 years where the tenant is in possession, or certain trust interests. The general rule under Torrens is that registered interests are binding; unregistered claims face higher proof requirements.

What happens if an easement is wrongly registered?

The party carrying the easement burden can apply to court to extinguish or modify the easement. The specific grounds and procedures are state-administered.

Are old covenants enforceable?

Generally yes, where they are properly registered and benefit an identifiable party. Some old covenants have become unenforceable as surrounding land use changed; each needs specific legal review.