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Real estate lawyers should be wary of caveats, new report reveals

“It’s clear that 2022 has been a difficult year for the Australian real estate market,” says one BigLaw firm.

user iconLauren Croft 11 January 2023 Big Law
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Hamilton Locke has released its summer 2022 edition of Real Estate Markets Quarterly, revealing a number of market insights from the last quarter. Produced by Hamilton Locke partners John Frangi and Brendan Ivers, the report noted that the marginal cost of debt is the highest it has been since the global financial crisis (2012), but there are limited signs of distress as most property funds have low levels of gearing and relatively long-dated debt.

In addition, there is still a significant amount of overseas capital investing in the Australian real estate market, with the US and Singapore still the main sources of overseas capital (representing approximately 60 per cent of the total overseas capital). Return growth in the Australian real estate market, however, has slowed in all sectors apart from retail.

 
 

“On the regulatory front, ASIC has been very active in targeting property fund operators for failures to comply with design and distribution obligations and in particular the adequacy of target market determinations. In addition, ASIC has been targeting managed fund advertising and in particular ‘greenwashing’. ASIC has stated they will continue to focus their enforcement priorities on those areas in 2023,” the report stated.

“From that overview, it’s clear that 2022 has been a difficult year for the Australian real estate market. But hopefully inflation and interest rates begin to moderate in 2023 and that provides the capital markets with more certainty and increased confidence to invest.”

The report also has an article on caveats — written by partner Brit Ibanez and lawyer Lily Cox - and how these may impact practitioners moving forward.

There are two types of real estate caveat: a permissive caveat allows further dealings with the property, subject to the permission of the caveator; and an absolute caveat prohibits the registration of any further dealings with the property until the caveat has been removed. A caveat cannot be lodged without a reasonable cause, meaning the lodging party must have a proper interest, either legal or equitable, in the land.

And according to the report, a solicitor or conveyancer who prepares and facilitates the lodgement of an erroneous and defective caveat may face “serious allegations of professional misconduct”.

“In Victorian Legal Services Commissioner v Souki, the Legal Services Commissioner bought charges against a legal practitioner who had facilitated the lodging of a caveat for her client when she knew and had advised that no caveatable interest existed. The commissioner alleged, and the practitioner admitted, her conduct involved a substantial failure to reach or maintain a reasonable standard of competence and diligence which amounts to professional misconduct,” the report stated.  

Guirgis v JEA Developments provides another cautionary tale for practitioners as to the importance of taking reasonable steps to inform themselves of the proper basis on which a caveat is to be lodged. In this case, a conveyancer was found to have failed to make any enquiries or obtain any supporting documentation from their client to confirm a caveatable interest actually existed before lodging the caveat.

“The judicial scrutiny surrounding the lodging of erroneous caveats should act as a warning to lenders and practitioners alike to ensure they have a proper basis before lodging a caveat.”

Environmental, social, and governance (ESG) will also be a key issue for the real estate market moving forward, with GSA Insurance Brokers head of professional and financial lines Ryan Neary predicting in the report that companies with good ESG scores will be able to differentiate themselves better in the market.

However, ransomware will continue to be the area that affects organisations the most.

“From the claims trends we have seen, it affects all industry sectors and organisations of all sizes. Insurers continue to develop a further understanding of the threats an organisation faces, and the optimal way to minimise or eliminate these. The most recent examples of these situations are both Optus and Medibank becoming compromised and having sensitive information/data taken,” the report stated.

“Controls will remain a critical element of not only reducing premium spend on cyber insurance but will also impact accessibility and availability of these policies. 2022 saw a rapid change to underwriting appetite and reducing insurer’s exposure to unsustainable losses. It is now becoming clear that the focus has now shifted to consolidating these changes and further developing the data collection process through adequate submissions and engaging with the key stakeholders in an organisation to understand these.”

Lauren Croft

Lauren Croft

Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.