Lien Holder's Caveat in A Nutshell

 

This is another form of security that can be taken over land. However, like a charge, it is

available only when the land in question has been issued with the document of title. A

lien is defined as a right to retain possession of an asset for a debt that is unpaid.

A lien-holder’s caveat is created when the proprietor of land surrenders possession of

his document of title to the bank. The security over land by way of a lien-holder’s caveat

is created when Form 19D prescribed under the National Land Code 1965 is lodged and

registered with the Registrar of the Land Office. The caveat therefore prevents another

party from dealing with the property without consent or notice to the caveat holder.

The mere deposit of the land title with the bank is insufficient to create the security.

Form 19D must also be lodged and registered.

Section 281 of the National Land Code 1965 specifically requires the proprietor

and only the proprietor to deposit his issued document of title with the bank before a

lien-holder’s caveat can be created. There is no provision for any “third-party” lienholder’s

caveat. Any attempt to create a “third-party” lien-holder’s caveat is void.

The advantages of a lien-holder’s caveat are:

 

• Fewer formalities as compared to a charge; and

• No stamp duty payable.

 

The practical disadvantage of a lien-holder’s caveat lies with its enforcement. Under

the provisions of Section 281(2) of the National Land Code 1965, a judgment of the court

must first be obtained against the borrower before the property secured under the lienholder’s

caveat can be formally foreclosed. In other words, a lien-holder’s caveat does not

confer the power of sale to the holder.

The litigation process in securing the judgment may be protracted, and there is no

certainty that the bank can successfully secure a judgment against the borrower.

Even if a judgment is obtained against the borrower, the bank is now required to

commence formal foreclosure proceedings in the High Court. It is only after the order

for sale is granted that the property can be sold by public auction. Further delay is thus

inevitable.

In respect of a charge, there is no requirement for any prior judgment to be obtained

against the borrower. Upon any default under the charge, the bank can proceed immediately

with foreclosure.

A lien-holder’s caveat is normally created for a short-term and small amount of

advances. However, and most importantly, it is created as a temporary measure to secure

a loan, pending the registration of a charge.

The most important difference between a private caveat and a lien-holder’s caveat is

that the former is not recognised as a security. A private caveat does not give any rights or

powers of sale to the caveator.

The private caveat will expire automatically after six years, whereas there is no time

limit for the expiry of a lien-holder’s caveat. It is to be noted that there are no provisions

for a lien-holder’s caveat in either the Sabah Land Ordinance or the Sarawak Land Code.