Indefeasibility of title is an essential element of the property system in New South Wales: it determines who has priority or ownership of real property (i.e. land and buildings) when competing interests exist.
The Torrens Title System
There are two central property systems in Australia:
- the Torrens Title system; and
- the Old Title system.
The Old Title system was the central system before the introduction of the Torrens Title system in 1863. Today, you must register all property under the Torrens Title system. However, in some cases you may have to deal with the Old Title system, where no one title proves ownership. You must establish ownership by examining an unbroken series of deeds following a paper trail.
Under the Torrens Title system, more than a contract of sale for real property is required to transfer the property. After signing the contract, the dealing between the parties must be registered at the land title office in the state or territory in which the property is situated. Upon completion of registration, the interest in the property is registered and the property is properly transferred.
The Torrens Title system simplifies dealing with land, as it relies on the indefeasibility of the title concept, where a registered interest has priority over all other interests. This system allows property buyers to rely solely on title registration to determine ownership or interest in the real property. They need not investigate whether the prior transfer was valid, which provides them with a higher level of security.
Indefeasibility of title
Indefeasibility of title means that you have a registered title over real property and a third party cannot challenge your claim over your property. If you have indefeasibility of title, and you are listed as the registered owner on the title records, you have an indefeasible claim to the property. Unregistered third parties can claim the property belongs to them only in exceptional circumstances.
Even with indefeasibility of title, some interests which will impact what you can do with your property can be registered over your property. These include:
- easements;
- leases;
- mortgages; and
- caveats.
These interests are registered over the title and given priority in the order of their registration. For example, if you purchase property and enter into a mortgage concerning that property. The mortgage will be the first priority registered interest after your interest as the owner. Only if you default on the terms of your mortgage can the mortgagee exercise its power of sale rights against you. You will need the mortgagee’s consent if you want to enter into a lease for the property with the mortgage registered over it.
If you enter into a commercial lease, you will want to ensure that the landlord has indefeasibility of title and the right to grant you the lease.
Exceptions to Indefeasibility
Generally, you cannot challenge the indefeasibility of a title. However, there are some exceptions where a court may consider overruling indefeasibility and reversing the registration. These include-
- forgery;
- fraud;
- misdescriptions;
- prior certificates of title; and
- prior registered interests.
For example, if it can be proven that title registration was acquired by fraud (including fraud carried out by an agent), a court may.
Despite the above, a purchaser who purchases a property in good faith for fair value without knowledge of competing or adverse claims for that property will still take indefeasible title to the property.
Example
In a landmark case, A and B were joint property owners. To execute a mortgage over the property, A forged the signature of B. A failed to make payments under the mortgage, the mortgagee exercised their powers of sale over the property and sold the property to C for a fair value. B brought proceedings stating the mortgage occurred without their knowledge and challenged the title of C. Despite the fraudulent conduct of A, it was determined that C as a bona fide purchaser, obtained indefeasibility of title as they were unaware of the fraudulent conduct.
Why should I care?
The indefeasibility of title grants you greater security in your property and land ownership. It is crucial to register and conduct proper due diligence when purchasing or leasing a property. This may include ensuring that the owner is on the title and being aware of any other interests on the title that may affect the property.
The indefeasibility of title does not just affect land ownership. It may also affect your:
- commercial lease;
- mortgage; and
- other property encumbrances.
The order of registration of such instruments will affect your rights, as in New South Wales priority is accorded by the date of registration, and any encumbrances registered earlier than yours may take priority. Reviewing the title of a property is an essential part of any property transaction.
Contact us for assistance registering an interest in a property or if you have questions about the indefeasibility of the title.
