Priority notices are a relatively new feature in Real Property, and as such, they are not always well understood. Here to demystify how priority notices work, how they came about, and when and how to use them is property lawyer and College of Law lecturer, Greg Stilianou.
How did priority notices come about?
Priority notices are a relatively new type of land transaction that can be lodged in the Torrens register. Priority notices were introduced into the Real Property Act 1900 on the 26th February 2016.
“Priority notices actually came about as a result of a High Court decision in Black v Garnock [2007] HCA 31,” Greg says.
The decision was a cautionary tale for the profession. It was about a purchaser’s failure to lodge a caveat under a contract for sale of land from the registered proprietor.
“It was a case where there was a Writ that was recorded on the land's title, and that Writ operated to prohibit the registration of the purchaser's transfer. That is, the purchaser from the registered proprietor,” Greg says. “It operated in that way, even though the contract for sale of land was dated earlier in time than the Sheriff's contract. The Sheriff's transfer was ultimately registered and the purchaser from the registered proprietor lost out. The case was ultimately a priority dispute."
In response, priority notices were created through the introduction of Part 7B into the Real Property Act. As a relatively new feature in property law, Greg thinks there are some misunderstandings around what a priority notice is and how they can protect clients.
“It's effectively a land transaction or tool that we can offer our clients to better protect them and their interests in property. I think part of the reason why priority notices aren't used as much as they could be is because of the Government's mandate for the electronic preparation and lodgment of land dealings within the ELNO system.”
ELNO refers to the Electronic Lodgment Network Operator system.
“Only lawyers can use the system, which might mean there are less private lodgments from people off the street just walking into the land titles and being able to lodge a document,” Greg says. “Legal representatives might also think it's unnecessary to use a priority notice given that only lawyers can access the land titles system through their ELNO.”
However, Greg believes there’s another reason at play.
“ELNOs have been fantastic at selling the security and safety of their system… But the security and safety that PEXA offers is different to the protections you get from a lodged caveat or priority notice. As practitioners, we shouldn't get confused between the security and integrity of the electronic lodgment network versus the security and protection of prohibition against land dealings and reservation of priority that a caveat and priority notice can offer in the land register.”
What is a Priority Notice?
Interestingly, the Real Property Act 1900 defines the expression ‘priority notice’ as a priority notice under Part 7B. “So, we can really only understand what the definition of a priority notice is based on what effect the legislation gives a priority notice,” Greg says.
Under this provision, any person who intends to lodge a land dealing in the future that will give effect to an entitlement to an estate or interest in land, may lodge a priority notice in respect of the proposed dealing - and any other associated dealing - that's intended to be lodged.
This is provided for in section 74T of the Real Property Act 1900.
“As the name suggests, the purpose of a priority notice is to get priority of registration for the land dealing that's intended to be lodged through which that person will acquire their interest in the land,” Greg says. “For example, a person who has entered into a transaction that will result in the person becoming a transferee, a mortgagee or a lessee of land can lodge a priority notice in respect of the proposed transfer, mortgage or lease land dealing.
“The main function of a priority notice is to notify a person who searches the land register that there is a person who intends to lodge a dealing and that the dealing that's intended to be lodged will take priority of registration to any other land dealing that's lodged during the time.”
The effect of this is to preserve priority of registration for the land dealings referred to in the priority notice. A priority notice disrupts the usual rules relating to priority for registration that is found in Section 36 of the Real Property Act. The usual rules require a land dealing to be lodged in a registrable form and lodged earlier in time than the competing land dealing to acquire priority of registration.
“Therefore, by lodging a priority notice in relation to a proposed land dealing, it will allow the land dealings that are listed in the priority notice to leapfrog a competing land dealing that's been lodged in registrable form and lodged earlier in time than the land dealings that are listed in the priority notice,” Greg explains.
How does it differ from a caveat?
According to Greg, the prohibitive effect of a priority notice operates against a wider class of land transactions than a lodged caveat. But like a caveat, a priority notice doesn't confer a blanket prohibition.
While the priority notice has effect, it operates to prohibit the registration or recording of any land dealing, writ or plan, but it will not prevent the registration of a transaction that is listed in section 74W(2).
“Now we can compare the list of exempt transactions that a standard caveat will not prohibit from being registered in Section 74H(5) of the Real Property Act,” Greg says. “The list in Section 74W(2) is a much shorter list of transactions that are not captured by the prohibition, meaning a priority notice has a broader scope of prohibition than a standard form of caveat.”
Among the transactions that may be registered in the face of a lodged priority notice are the dealings that are referred to in the priority notice. This is in Section 74W(2)(b).
“This permission to register a land dealing that underpins the priority notice whilst prohibiting other dealings from getting registered is a key feature that preserves priority of registration. This is not a feature that relates to a caveat.”
Another difference, Greg notes, with the prohibitive effect of a priority notice is that its prohibitive effect cannot be amplified to include any of the listed transactions in Section 74W(2).
“On the other hand, with a caveat, you can increase its prohibitive effect by ‘otherwise specifying’. A priority notice can only have a standard unmodifiable prohibition.”
Priority notices also differ from caveats with respect to how long they are effective.
“Both operate from the time they are accepted for lodgment, but a priority notice will only have effect for a period of 60 days,” Greg says. “That time can be extended by a single period of 30 days, if an extension is lodged before the expiry of that initial 60-day period.”
This means a priority notice will only be in effect for a maximum period of 90 days from the time of its lodgment. This is prescribed under Section 74V of the Real Property Act.
Caveats, by contrast, remain recorded indefinitely until they are withdrawn or lapsed.
“There's no equivalent lapsing process to bring about the earlier end of a priority notice,” Greg explains.
When would you use a priority notice over a caveat?
Both priority notices and caveats are documents that notify the world of a person who claims to be entitled to an interest in land.
“A priority notice should be sought if the claimed interest will result in a land dealing being lodged in the next 90 days,” Greg says. “If the preservation of priority of registration for that dealing is wanted, then a priority notice should be lodged.”
So, when would you lodge a caveat over a priority notice?
“A caveat will prohibit the registration of subsequently lodged land dealings, although this is against a narrower class of transactions than the priority notice will prohibit,” he says. “A caveat will not permit the land dealing that underpins the caveat to be registered in priority to any other document that's been lodged since the caveat was lodged. A caveat won't preserve priority.”
The priority notice will preserve priority registration for the land dealings that are referred to in it because the legislation provides that no dealing can be registered until the land dealings that are listed in the priority notice are first registered. However, there are instances where a caveat will be more appropriate.
“For example, the proposed land dealing that's going to be lodged won't occur for more than 90 days. Until you're within that 90-day period, a caveat is the next best option,” Greg explains.
“Alternatively, if a person doesn't propose to lodge a land dealing for registration, perhaps all they intend to acquire is an equitable interest in the land, as opposed to a legal interest. This will never be the subject of a registered dealing. In this situation, a caveat would be more appropriate.”
As a property lawyer, Greg generally advises clients to consider a priority notice.
“Whenever I have a client that enters into a contract that will see them acquire an interest in land, I always encourage them to lodge a priority notice. More often than not - perhaps two thirds of the time - the client will instruct me to lodge the priority notice.”
According to Greg his priority notice clients have been lucky not to face a competing land dealing to date.
“But if there was a competing land dealing lodged, their priority notice would operate to prohibit the registration of that competing land dealing, thereby achieving the success contemplated by Black v Garnock [2007] HCA 31” Greg says.
- Legal Industry Trends
- Practitioner
- Regulatory updates
- Property Law
- Technical Expertise
- News
![How to handle Direct Speech after Gan v Xie [2023] NSWCA 163](https://images4.cmp.optimizely.com/assets/Lawyer+Up+direct+speech+in+drafting+NSW+legislation+OCT232.jpg/Zz1hNDU4YzQyMjQzNzkxMWVmYjFlNGY2ODk3ZWMxNzE0Mw==)
