Caveats and section 184 sales for non-payment of rates

LG Leader September 2019

Despite Government reports of above trend growth in the South Australian economy, many councils have large numbers of long-term rating debts and are undertaking property sales under section 184 of the Local Government Act 1999 (“the Act”) to recover rating arrears.

Recently, we have observed the increased use of caveats by third party creditors to protect debts, estates and interests and to prevent the sale of land from occurring under section 184 or otherwise.

According to section 184(14) of the Act, when land is sold, title to the land vests in the purchaser free of:

• all mortgages and charges; and
• except in the case of land held from the Crown under lease, licence or agreement to purchase—all leases and licences.

As section 184(14) does not expressly provide that title vests in the purchaser free of caveats, Land Services SA will not allow the transfer of land sold under section 184 of the Act to occur where a caveat is registered on the title.  Caveats must, therefore, be removed from the title before a transfer of land to a purchaser under section 184 can occur.

There are a number of options to deal with caveats so that section 184 sales can be completed:

• negotiate the agreed removal of the caveat with the caveator. Often, caveats are registered as a debt-recovery measure by SA Water and other entities and the caveator will agree to remove the caveat if their debt is paid.  This option may be best to pursue when the sale price of the land will be significant.
• include a special condition in the contract of sale which obligates the purchaser to ensure that the caveat is removed before settlement. This option carries with it a risk that the sale contract may be terminated in the event that the caveator refuses to remove the caveat;
• apply to the Supreme Court to have the caveat removed. This option is not usually recommended due to the costs involved – such action is better pursued by a purchaser and should be considered as a last resort for a council.

For any assistance with section 184 sales, please contact Victoria Shute on 08 8113 7104 or at vshute@kelledyjones.com.au.