"There is a private caveat on the title. Can the sale still proceed?"

Michelle agrees to purchase a piece of land for RM900,000.

A title search is conducted before the Sale and Purchase Agreement is signed. The search shows that the seller is the registered proprietor, but it also reveals a private caveat entered by another individual.

The seller explains:

“That caveat was entered by my former business partner. He does not own the land. We can remove it later.”

Michelle is told not to worry because a caveat is “only a notice”.

But her bank will not release the loan while the caveat remains, and the transfer cannot be registered in the ordinary manner.

Does the caveator own the land? Can the seller simply remove the caveat? Should Michelle proceed with the purchase?

1. A private caveat is not the same as registered ownership

A private caveat is a statutory mechanism under the National Land Code used by a person or body claiming a registrable title, interest or other qualifying claim over alienated land or an interest in it.

Its entry does not by itself prove that the caveator’s claim is valid.

The registered proprietor remains the registered proprietor unless and until the legal position changes through a registered dealing or court order.

However, the caveat is not meaningless. While it remains in force, it can prohibit the registration of dealings affected by it.

This may prevent the purchaser’s transfer or the bank’s charge from being registered.

The relevant private-caveat framework is found in sections 322 onwards of the National Land Code.

2. Why might someone enter a caveat?

The underlying claim may arise from circumstances such as:-

• an earlier sale of the same property;

• a beneficial ownership claim;

• an agreement giving an interest in the land;

• a trust arrangement;

• a dispute between co-investors;

• an estate or inheritance claim; or

• another transaction said to create a caveatable interest.

Not every disagreement about money gives a person the right to caveat land.

A creditor cannot necessarily enter a caveat merely because the registered proprietor owes him money. The nature of the claimed interest must be examined.

At the same time, a purchaser should not assume that a caveat is baseless simply because the seller describes it as a personal dispute.

3. The seller cannot always remove it immediately

There are several possible routes by which a private caveat may cease to affect the title.

The caveator may voluntarily withdraw it. The registered proprietor or another affected party may invoke the statutory removal procedure. An application may also be made to court for removal, depending on the circumstances.

Each route has its own requirements and consequences.

If a removal notice is issued under the relevant statutory procedure, the caveator may apply to court to extend or preserve the caveat. The dispute may therefore develop into contested proceedings rather than ending automatically.

The seller’s statement that “my lawyer will remove it” is not a substitute for reviewing:-

• who entered the caveat;

• when it was entered;

• the interest claimed;

• whether proceedings are pending;

• what removal steps have been taken; and

• how long the process may take.

4. Can the SPA be signed before the caveat is removed?

It can be possible to enter into an SPA while a caveat remains, provided the agreement deals properly with that risk.

The SPA may make the transaction conditional upon the caveat being withdrawn or removed within a specified period.

It should identify:-

• the particular caveat;

• the seller’s obligation to procure its removal;

• the deadline for removal;

• whether the seller must defend any court application;

• whether the purchaser may extend the period;

• what happens if the caveat remains;

• whether the deposit will be refunded; and

• who bears the related costs.

The purchaser should consider whether the deposit will remain with a stakeholder until the condition is satisfied.

If the caveat is linked to a credible prior purchaser or beneficial owner, merely inserting a removal clause may not provide sufficient protection. The underlying claim needs to be understood before the purchaser commits.

5. What if the seller says the caveat will expire soon?

A purchaser should not rely on an estimated expiry date without checking the law and the current title record.

The duration and continuation of a caveat may be affected by statutory provisions, court orders and procedural steps taken by the parties.

Even if an existing caveat is removed, the underlying claimant may still commence legal proceedings or seek other relief.

The transaction therefore needs more than a prediction that the title will become clear by a particular date.

Ask whether the substantive dispute has been resolved and whether a written settlement or release exists.

6. What if the caveator agrees to withdraw it upon payment?

Sometimes the seller and caveator negotiate a settlement.

Part of the purchase price may be used to pay the agreed sum in exchange for the withdrawal of the caveat and release of the caveator’s claim.

If this arrangement is accepted, the completion mechanism must be carefully coordinated.

The documents should state:-

• the settlement amount;

• who is authorised to receive it;

• the withdrawal and release documents to be delivered;

• whether payment and withdrawal occur simultaneously;

• what happens if the documents cannot be registered; and

• whether the caveator releases only the caveat or the entire underlying claim.

Paying the caveator without obtaining effective withdrawal documents may leave the purchaser with less money but the same title problem.

Conversely, the caveator may not agree to release the caveat before receiving secured payment.

A stakeholder arrangement and appropriate undertakings may be necessary.

7. Can the bank proceed despite the caveat?

Most financiers require their security to obtain the intended priority and to be capable of registration.

If a private caveat prevents registration of the transfer or charge, the purchaser’s bank may refuse to release the loan until the issue is resolved.

The bank’s credit approval does not mean that it has accepted every title defect. Disbursement remains subject to its legal and security requirements.

The purchaser should inform the bank early. A delay in caveat removal may cause the loan offer, valuation or other conditions to expire.

Do not assume the completion period under the SPA will automatically be extended merely because the bank refuses to disburse.

8. Should the purchaser enter another caveat?

A purchaser who has entered into a binding SPA may be advised, depending on the circumstances, to lodge a private caveat to protect the purchaser’s own claimed interest pending completion.

However, a caveat should not be lodged casually or simply as a method of pressuring the seller.

The caveator must have a legally supportable caveatable interest. A person who enters or maintains a caveat without proper cause may face consequences, including a possible claim for compensation under the National Land Code.

The purchaser should obtain advice on the basis, timing and wording of any proposed caveat.

9. A caveat can reveal a larger problem

The caveat may be only the visible entry on the title.

Behind it could be a prior SPA, trust dispute, family arrangement or allegation that the seller had already agreed to dispose of the land.

The purchaser therefore needs to investigate the underlying documents, not merely demand deletion of the entry.

If the seller refuses to explain the caveat or provide correspondence relating to it, that itself should be treated seriously.

10. What should Michelle do before proceeding?

Michelle should obtain a current official search and copies of the relevant caveat documents where available.

Her solicitors should seek written information from the seller about the caveator’s claim and the intended removal process.

If she still wishes to proceed, the SPA should make removal a properly drafted condition and control the deposit, completion timeline and termination consequences.

A caveat does not always make a sale impossible.

But until it is effectively removed or otherwise resolved, the seller may be unable to provide the clear and registrable title promised to the purchaser.