Pay up or sell up – charging clauses and caveatable interests in land

Creditors often ask whether they are entitled to lodge a caveat over a debtor's property as a mechanism for securing payment of outstanding debts.

While it is in force, a caveat prevents the registration of certain dealings affecting the land in relation to which it is lodged.

Relevantly, a registered caveat will prevent the transfer of legal ownership of land, or the registration of a new mortgage (which might otherwise deplete the 'equity' in the land).

A caveat may significantly increase a creditor's prospects of recovering an unpaid debt because:

1. The debtor's ability to realise and/or dispose of the equity in the land will be limited, thereby protecting the pool of assets available to satisfy the debt; and