The Differences Between The 2 Caveat Types In Malaysia!
Let us start this guide with a caveat. A what, we hear you ask? Well okay, let’s start with the definition of ‘caveat’ from the Cambridge dictionary:
“It is a warning to consider something before taking any more action, or a statement that limits a more general statement.”
So, what warning against action are we talking about here? And how does this legal thing apply to property?
It’s time to explore what a caveat (or even a private caveat) is, and what it means in the sense of property ownership!
What Is Caveat, Or Private Caveat?
To define caveat, it’s essentially a legally recognised intention to purchase. It’s an official record of interest lodged against ownership of property.
That is to say (more officially) that it’s actually a legal restriction which is outlined under the National Land Code (NLC), that states:
“The caveat is a mechanism that prevents the registration of the transaction under the National Land Code (NLC) to protect the interests of certain parties.”
A private caveat is designed to ensure that a purchaser of property has protection against the owner selling it to another party.
It’s basically a mechanism to secure your intention for purchase. If you have a caveat lodged against a property, the owner is prevented from selling, until that caveat is settled.
There are two important types of caveat recognised under the National Land Code. The first is a registrar caveat, which is used for official government or administrative purposes.
We’ll go into that a bit more later. It’s the private caveat that’s potentially relevant to your journey as a private property owner or buyer. As defined under the NLC:
2.1 Private caveat may be entered by the Registrar for application of the following:
2.1.1 Any person or entity claiming rights to land owned or registered interests.
2.1.2 Any person or entity entitled to the benefits under any trust affecting the land or interest.
2.1.3 Guardian or person representing any of the teenagers who claim to be entitled to benefits under any trust.
Take a scenario where you purchase a property, but the deal isn’t set to be complete until many months later.
You become worried about the deal falling through, because the seller may back out (cancel the agreement), or take a better deal elsewhere.
By lodging a private caveat in Malaysia, you’re making an official restriction against a sale elsewhere, essentially stating your right to purchase.
A caveat on property will be clearly registered, and visible to any other parties who conduct a title search for that property. That means others will be able to see your notice of interest.
What’s also important is once you’ve lodged a caveat of interest, other parties are not only prevented from purchasing the property, they’re also prevented from registering interest after you.
Who Can Enter Into A Caveat?
You shouldn’t just rush around Malaysia choosing nice places and putting a caveat on all the land! You need to have something called a ‘caveatable interest’ for one to be valid.
It’s worth pointing out the official National Land Code definition of this first, although it’s not as specific as you might hope!
“The persons and bodies at whose instance a private caveat may be entered are:
(a) any person or body claiming title to, or any registrable interest in, any alienated land or undivided share in any alienated land or any right to such title or interest;
(b) any person or body claiming to be beneficially entitled under any trust affecting any such land or interest; and
(c) the guardian or next friend of any minor claiming to be entitled as mentioned in paragraph (b).”
In simpler terms, a caveatable interest for property would include scenarios such as having agreed and signed a Sale and Purchase Agreement (SPA), paid an amount such as an earnest deposit, or where funds or legal agreements have otherwise been lodged against a property.
If you paid your way, you can lodge a desire to stay! The person who applies for a caveat is known as the caveator. The person who owns the property it is lodged against is known as a caveatee.
The law in Malaysia does include provision for wrongfully lodged caveats, and can penalise (PUNISH) individuals for this.
That means if you lodge a caveat that isn’t deemed to be legitimate, you would have to pay compensation to the landowner for any damage or loss they’ve suffered.
That’s why you shouldn’t rush around lodging any old property caveat you like!
What Happens If You Enter A Caveat Without Legal Basis?
In certain situations, you can, and are, allowed to enter into a private caveat without any legal grounds.
This would typically happen for scenarios such as for the recovery of debt, or as security/collateral amidst an active civil dispute.
Even though it’s not on a legal basis, the good news is that the caveat can be removed, and the affected party (cavatee) will be able to claim for compensation against the caveator.
The claim can be made on the grounds of any loss or damage incurred by the unwarranted entry of a caveat.
How Does A Caveat Work?
You might have guessed by now that lawyers are an important part of this process.
Lodging a caveat is an official statutory instrument, and should include proper legal overseeing to ensure that your caveat is valid, and that it’s lodged correctly.
A caveat is lodged using form 19B of the National Land Code – Application For Entry Of A Private Caveat. This form requires you to complete the following details:
- Name of relevant registrar or land register
- Your own name
- Grounds of your claim to the land or property
- Relevant fee
- Known address of proprietor
- Date and signature
- Witness and signature
- Details of land and property caveat to be lodged against
Once form 19B has been received by the Registrar of Titles or Land Administration, they note the application and time at which the caveat was received.
This is then lodged against the registered document of title for the property. That means a private caveat comes into force from the date of registration.
A Registrar will not investigate the claim behind a caveat, and instead take it on face value that it has been lodged in good faith and with appropriate cause.
Once this has been received, the Registrar then issues a form 19A to the registered land owner, informing them that a caveat has been lodged against the property.
How Long Does A Caveat Hold For?
If you no longer require a caveat, there are 3 ways a caveat can be removed.
First, a private caveat may be withdrawn at any time by the caveator by filling in form 19G of the National Land Code. There are a lot of forms in this whole caveat system, as you can see!
After submitting the necessary paperwork to remove the caveat, the Registrar will cancel the caveat entry and notify the cavatee about the removal.
Any individual who owns land which a caveat is lodged against, may apply for the removal of the caveat using form 19H, which is the second method here.
This will lead to a review of the caveat and its removal if it’s deemed invalid. A removal of caveat following this route comes into force two months after a notice is issued.
A private caveat will lapse after a period of six years, unless it is extended by way of a court order. In applying for a court order for extension, the application must meet the following tests:
- Show that the caveator has a caveatable interest.
- Query whether the caveator’s claim has a serious question to be tried in court.
- Ascertain whether on the balance of convenience, it would be better to allow a caveat to remain in force until a trial.
Lastly, a private caveat may also be removed by order of a court, if challenged by a caveatee under section 327 of the National Land Code.
Through this process, the caveatee must prove to the court that the caveat lodged against the property is invalid.
If this is successful, the caveator must prove that there is a valid and actionable reason for the caveat if it is to remain in force.
To do so, the caveator will need to prove it according to the tests mentioned above — their caveatable interest, the seriousness of the claim, and the necessity of a caveat based on convenience.
Registrar Caveat, Lien-Holder Caveat, and Trust Caveat
Now that we know a little more about a private caveat (the most important one for home buyers), let’s take a look at the remaining caveats.
1) Registrar Caveat
Also known as the land administrator caveat, a registrar caveat in Malaysia relates to official caveats entered into by the Registrar of Titles or Land Administrator; these are for official state or governmental business.
A private caveat can be entered into by private individuals, who wish to note their interest of claim of title over a land.
The registrar caveat is essentially an official mechanism used to prevent fraud, improper land deals, or protect the interest of the state due to errors in land documents or administration.
Unlike a private caveat, a registrar caveat does not expire, and remains in force for as long as the registrar property caveat is lodged.
A registrar’s caveat can be removed through application by the proprietor of the property, or via application to proceed through the courts by the proprietor or relevant third-party.
2) Lien-Holder Caveat
To understand what a lien-holder caveat is, you will first need to understand what or who a lien-holder is.
A lien-holder is a lender, such as a financial institution, with legal interest in your property until it is paid off in full. The lender holds a lien – which is a legal claim – on the property, as they lent you the money to purchase it.
That means in terms of property, a lien-holder would be the bank your mortgage loan is attached to.
The lien-holder caveat will be entered into by the lien-holder, your bank, with Form 19D. They will use the issue document of title as a security deposit for specific reasons, like granting loans and protecting the borrower’s interest in the land.
Despite the issue document of title being in the hands of the lien-holder, they do not endorse it. Such endorsements of the lien-holder caveat will only appear on the register document of title instead.
For this caveat to be effective, the lien-holder must deposit the issue document of title with/by the consent of all the proprietors.
Unlike a private caveat, a lien-holder caveat will not lapse after 6 years. The caveat will only be removed once the property is sold and with the registered sale of the property.
Additionally, it can be cancelled by the Registrar once the debt is fulfilled, or removed by court order.
Should the caveat be entered into wrongfully or fail to be withdrawn, and has caused the party a certain loss, the caveator may be ordered by the court to make compensations.
3) Trust Caveat
The ‘trust’ part in trust caveat here refers to ‘trustees’, so don’t get too confused just yet if you’re someone who has trust issues!
This caveat can be entered into by the trustees of the property (must be officially registered as one), the transferer of the property, or the beneficiaries of the property via Form 19E.
Until it is cancelled by the Registrar through a joint application from the trustees and beneficiaries, the trust caveat will continue to hold.
However, for a beneficiary’s interest to be better protected, it’s recommended to opt for a private caveat that can be easily withdrawn, unlike a trust caveat that would require mutual agreement from trustees too.
A trust caveat has some interesting terms and conditions too!
These include prohibiting the registration of trustees before the effective time of the caveat, no endorsements and claims, as well as any lien-holder caveats when the endorsement application was received before it.
The Differences Between Registrar Caveat vs Private Caveat
You might hear the term registrar caveat sometimes being used. This can get a bit confusing when you’re trying to work out which caveat is the one for you!
|Registrar Caveat||Private Caveat|
|Entered by the Registrar of Titles or Land Administrator, on behalf of official government or state business.||Entered by private individuals to note their interest of claim of title over a land.|
|Does not have an expiry date, and is effective as long as the caveat is lodged.||Expires in 6 years, unless it is removed or withdrawn.|
|Removal can be made by:
||Removal can be made by applying to the Registrar of Titles, Land Administrator, or to the court.|
The question of caveats is a complex legal issue, and if you get it wrong you could be liable to pay out compensation. Don’t go claiming houses that you have no right to claim!
But the madness of that idea aside, it’s always important to get professional legal advice when it comes to something as complex as this.
Speak to a lawyer, and make sure you follow the rules when it comes to lodging a property caveat.