High Court upholds homebuyer's right to sustain caveat in dispute over defective property

In a recent decision, the High Court has ruled that a buyer could sustain a caveat on a property after cancelling the purchase contract due to alleged defects, finding that the claim was valid despite the seller’s challenge and reliance on a “no caveats” clause.

The court allowed Huijie (Jess) Zhang to sustain a caveat over a property she contracted to purchase from Perma Ltd. This ruling comes amid a legal conflict stemming from Zhang’s cancellation of the purchase contract due to alleged building defects.

In October 2021, Zhang entered a contract with Perma to buy one of nine newly developed townhouses. By August 2023, construction was completed, and the title and code compliance certificate were issued, prompting the settlement process. Before settlement, Zhang commissioned a building report, which she claimed revealed significant defects. She subsequently attempted to cancel the contract, but Perma disputed the cancellation and declared it a repudiation, seeking damages for breach of contract.

Zhang countered, seeking the return of her $100,000 deposit and damages for additional losses. She also lodged a caveat against the property title, asserting an equitable lien for her deposit.

Perma argued that Zhang’s cancellation was invalid and invoked a “no caveats” clause in the contract to contest her caveat. The High Court examined the legal standards for sustaining a caveat, emphasising that the applicant need only demonstrate a "reasonably arguable" interest in the land. The court found that Zhang met this threshold, showing the existence of defects at the time of settlement that could justify contract cancellation.

Perma conceded that the building had defects but questioned whether these justified contract termination. The court analysed implied warranties under the Building Act 2004, noting breaches could allow cancellation if a reasonable purchaser, aware of the defects at the time of contracting, would not have proceeded. Affidavit evidence from building experts revealed significant issues, including inadequate sealing and structural concerns, reinforcing Zhang’s position.

The court determined Zhang’s claim was reasonably arguable, entitling her to sustain the caveat. It rejected Perma’s assertion that the “no caveats” clause should be enforced post-cancellation, affirming Zhang’s protection of her proprietary interest. The court’s ruling prevents the caveat from lapsing, preserving Zhang’s ability to secure her deposit.