On 2 July 2021, the Registrar General of New South Wales formally announced changes to the land title system in New South Wales that triggered the final steps toward a system of 100% electronic lodgment of dealings for land transactions. These changes come into effect today – 11 October 2021.

In this article, we offer answers – some straightforward, others more detailed – to the most common questions we have received from mortgagees (and from mortgagors concerned about how their mortgagees will react) since that formal announcement. Those questions have largely focussed on what these upcoming changes mean for mortgagees, their security interests in New South Wales real property, and their ability to prevent other parties from legitimately or illegitimately dealing with that property while the mortgagee’s mortgage is registered on title.

The good news is that there is not much, if anything, that a mortgagee needs to do as a consequence of the changes that come into effect today. The bad news is that there is not much, if anything, that a mortgagee can do.

Let us explain.

Can you remind me what is happening?

Of course:

  1. The Real Property Amendment (Certificates of Title) Act 2021 (NSW) amended the Real Property Act 1900 (NSW) (Real Property Act) to permit the Registrar General of New South Wales to declare a date on which all existing certificates of title for New South Wales properties will be cancelled, no new certificates of title will be issued, and certificates of title as a concept will cease to exist.
  2. The Registrar General of New South Wales declared, in the New South Wales Government Gazette on 2 July 2021, that 11 October 2021 will be ‘Cessation Day’ – the date upon which all certificates of title for New South Wales real property (both physical and electronic) and the control of the right to deal (CoRD) framework will be abolished. The fact that 11 October 2021 also ended up becoming New South Wales’ ‘Freedom Day’ is, as far as we know, completely coincidental.
  3. Clearly on a roll, the Registrar General also declared that 11 October 2021 is the date on which all dealings in New South Wales real property must be in electronic form, with paper dealings no longer accepted for lodgment. All dealings must therefore be lodged through an ‘eConveyancing’ system; for example, registered through an Electronic Lodgment Network Operator (ELNO) such as Property Exchange Australia (PEXA) or Sympli. This requires that the party making the lodgments be a subscriber to that ELNO (such as a law firm and its lawyers, licensed conveyancers, and some banks and financial institutions).
  4. Following registration of a dealing, an Information Notice will be issued that confirms what dealing was registered and the date of that registration.

Gilbert + Tobin’s Real Estate team recently authored an article – Preparing for 100% Electronic Lodgement of Land Dealings in NSW – that looked at each of these matters in general terms. As banking and finance lawyers, our focus in this article is on what these changes mean for mortgagees and mortgagors (and, with a healthy serve of self-interest, the lawyers and law firms that represent them).

So What DO these changes to the land title system in New South Wales mean for a humble mortgagee?

On and from Cessation Day, mortgagees will no longer:

  • Have ‘control’ of the certificate of title, whether physically (by holding a paper certificate of title) or electronically (by being a ‘CoRD holder’).
  • Be able to (or need to) produce a certificate of title at the New South Wales Land Registry Service (or provide the equivalent CoRD holder consent through an ELNO in electronic form) in order to consent to the registration of a dealing on a title over which the mortgagee has a registered mortgage.
  • Need to (or have the legal right to) consent to the registration of other dealings with the real property over which it has a mortgage, nor be asked to join a PEXA workspace when such registrations are being made. There are some limited exceptions to this, which we discuss below.
  • Have the ability to register a dealing over New South Wales real property (including during an enforcement event) without using an eConveyancing platform. That means the mortgagee will need to be a subscriber to an ELNO, or engage the services of a subscriber to an ELNO. This seems like a good time to very subtly note that Gilbert + Tobin is a PEXA subscriber and has a very experienced banking and property team that can assist a mortgagee with any dealings through PEXA or any other ELNO.
  • Be able to rely on holding a physical certificate of title as a form of security interest as that certificate of title will no longer have any legal effect or value as an interest in the property.

Does a mortgagee need to do anything to ensure its rights and interest in the mortgaged property are not affected?

According to the NSWLRS, no action needs to be taken by anyone with an interest in New South Wales real property, as all physical certificates of titles and all CoRDs will be cancelled, and replaced with electronic titles and electronic lodgment of title documents. From today, 11 October 2021, the NSWLRS will issue an “information notice” to the interested parties following an eConveyancing transaction, which will confirm what dealings have been registered and, if applicable, new folio details for the land.

Practically, though, these changes will require all those that deal in New South Wales real property to adjust the way they think about property transactions and their rights and responsibilities when it comes to holding an interest in that real property.

First, all dealings will need to be lodged electronically. Admittedly, this is the case for almost all property dealings in New South Wales already though until now, there have been some important exceptions, including leases. That means that to register a dealing a party will need to use, or will need to engage a participant who can use, an electronic lodgment network such as PEXA or Sympli and lodge dealings through that platform, rather than lodging dealings in person or via physical post with the NSWLRS.

What should a mortgagee who holds a physical certificate of title or a CoRD for New South Wales property do with it?

From the perspective of representing ownership in Torrens Title for New South Wales real property, physical certificates of title and CoRDs are completely and utterly useless as legal documents on and from 11 October 2021.

From the perspective of an arts and crafts project, they still have some value. Suggested uses include:

  • Tearing it up into small pieces, throwing them in the air, pretending they are confetti and you are celebrating your success, then vacuuming up all the small pieces and disposing of them thoughtfully in the nearest recycling bin.
  • Burning them to ash with cleansing fire, in a safe, Occupational Health and Safety-approved manner.
  • Putting them on a tray and sliding them into a hot oven to see if they shrink to tiny little certificates of title or CoRDs in the same way that an empty packet of chips does.

Are there any circumstances in which a mortgagee can register a dealing physically, or consent to an electronic dealing over a mortgaged property?

Some, but not many at all. The two key exceptions to the ‘no consents, no physical lodgments’ world that began on Cessation Day are:

  • Memoranda: A mortgagee may, in some circumstances, need to lodge a memorandum with the NSWLRS. The most common example is a memorandum of common provisions that sets out the standard terms for the mortgagee’s mortgage and to which all future mortgage documents refer. These memoranda are currently considered outside the scope of the electronic lodgment regime and the NSWLRS has established a process for lodging and registered such dealings outside of an ELNO.
  • Leases of mortgaged property: If the registered proprietor of a mortgaged property wants to lease the property, and the lease is registrable, the proprietor is still required to seek the mortgagee’s written consent to the lease before it is registered so that the mortgagee will be bound to honour the terms of the lease (53(4) of the Real Property Act). If it agrees to do so, the mortgagee provides that written consent to the registered proprietor or their lawyers, who then upload it to the ELNO along with the registrable lease at the time of registration.

If I am a first ranking mortgagee, can I lodge a caveat right after I lodge my mortgage in order to prevent any future dealings on the title without my consent?

That is one way of potentially preventing another party from lodging a dealing against the mortgaged title without your consent, or knowledge. However, before doing so (or asking your lawyers to do so on), let’s all just consider exactly what a caveat is, what it does, and when it should (and, legally, can) be used.

A caveat is an instrument registered over Torrens title land to protect an unregistered legal or equitable interest in that land. A validly registered caveat will prevent the registration of any dealing that will affect the estate or interest claimed by the caveator (the person lodging the caveat) unless consented to by the caveator or specifically permitted by legislation (for example, New South Wales property law permits a transfer of land subject to a caveat by a mortgagee exercising a legally valid power of sale).

In New South Wales, the use of caveats (and the circumstances in which they are permitted to be registered on a title, and those in which a party can apply for a caveat to be removed) is governed by Part 7A of the Real Property Act

While lodging a caveat immediately after the mortgage might achieve the mortgagee’s aim of preventing further registered dealings without the mortgagee’s consent, it is a bold (some, like us, would say risky) move. Both the statutory regime for creating caveats under the Real Property Act and the common law on caveats make clear that a caveat is not designed to be a substitute for registration of a property interest over the title to a property. A caveat is simply meant to ensure that while the caveator has some form of interest in the property, or intends to deal with the property in some way, no additional registrations can be made against that title that will adversely affect that caveator’s interest in, or undermine or their intended dealing with, the property.

One very significant barrier is that it is very unlikely that a mortgagee will have a right to lodge a caveat against a property once it has registered a mortgage over the property. Section 74F of the Real Property Act sets out the circumstances in which a caveat can be validly lodged, and none of the grounds listed in that section expressly permit a mortgagee with a registered mortgage to then lodge a caveat.

What about if the caveat is lodged after the mortgage is signed but before it is registered?

In that case, the caveat is much more likely to be validly lodged by the mortgagee, as section 74F permits a person with an unregistered dealing to lodge a caveat prohibiting the registration of any other mortgage or any other dealing such as a transfer of land. However, once the first ranking mortgagee does register its mortgage, section 76H of the Real Property Act requires the New South Wales Registrar General to lapse the caveat.

That leaves one possible option for a mortgagee: section 76F(2) permits the registered proprietor (the mortgagor) of the property to lodge a caveat against their own property if, amongst other reasons, that registered proprietor “…fears an improper dealing with the estate or interest by another person”. This means there could be a possibility that the mortgagor and the mortgagee could mutually agree (whether contractually or in the course of informal commercial discussions) that the registered proprietor will lodge a caveat over their property immediately after the mortgagee registering its mortgage (and with the consent of that mortgagee), preventing any further mortgages, leases, transfers of land, or other dealings being registered. The argument will need to be that the registered proprietor fears that a third party will lodge a dealing on the title without the knowledge or consent of the registered proprietor or the first ranking mortgagee, and (so the argument might go) put the registered proprietor into default under its mortgage and other financing arrangements with the first ranking mortgagee.

Clearly, this approach is untested and relies on a very manufactured set of circumstances to justify the registration of a caveat over the property following the registration of a mortgage, and in the absence of specific guidance from the Office of Registrar General or the courts, it is not one we recommend mortgagee’s adopt without seeking specific legal advice.

What does the NSWLRS have to say about all of this? Do they know the position they are putting a poor mortgagee in with these Cessation Date changes?

They do.

The position of the Registrar General is that the move to an all electronic registration system and the abolishment of certificates of titles and CoRDs will improve the security and efficiency of the real property and conveyancing systems in New South Wales. To quote from the Registrar General’s statement on the changes:

“The Torrens Title Register has always been and will continue to be the single source of truth as to the ownership of a person’s home. The Torrens Title Register is securely stored and backed up by both NSW Land Registry Services and the Office of the Registrar General.”

And according to the NSWLRS, it is not necessary to register a caveat to protect a registered proprietor’s (or, by extension, a mortgagee’s) interest in the property. The NSWLRS’ position is that:

“Where there is no CT, the risk of fraud using the CT is eliminated, therefore it is of little value to lodge a caveat after 11 October.”

While aspirationally correct, the counterpoint to the NSWLRS’ position is that: “Where there is no CT, the position is be the same as if the fraudulent party was in possession of the CT so therefore it would be eminently sensible to lodge a caveat”.

What has the experience with electronic title records been like in other States and Territories?

New South Wales is certainly not alone in moving to a title system that is completely electronic, nor alone in requiring that all property dealings be lodged electronically (subject to very limited exceptions where paper dealings are still capable of being lodged).

Queensland has led the way in the move to a completely electronic title system. The Registrar of the Queensland land titles office can no longer issue paper certificates of title, and all paper certificates of title have no legal effect. Queensland also has specific legislation that prevents a first ranking mortgagee from preventing a second mortgagee from registering their second ranking mortgage on a mortgaged title and that prevents the first ranking mortgagee from having terms in its contracts with the mortgagor that triggers a default if the mortgagor grants that second mortgage. New South Wales has not gone that far, though the practical outcome in both jurisdictions will be the same from 11 October 2021: a first ranking mortgagee cannot prevent the registration of a second ranking mortgage (though in New South Wales this can still trigger a breach of contract and lead to the first ranking mortgagee putting the mortgagor into default).

South Australia is equal first with Queensland; the Registrar of its land titles for South Australia does not issue new certificates of title and any existing physical certificates of title are invalid (and get destroyed if lodged with the titles office).

Other jurisdictions, including Victoria, Western Australia, and the Australian Capital Territory no longer issues paper certificates of title, though existing paper certificates of title remain valid while the process of converting all existing physical certificates of title are converted to electronic certificates of title. Western Australia has a similar law to that in Queensland that prevents a first ranking mortgagee from having a contractual term that prevents the mortgagor from granting a second ranking mortgage (or that causes that mortgagor to be in default if it does grant that second ranking mortgage).

So is this good news or bad news for property transactions in New South Wales?

Good news. And bad news. It all depends on how you look at it and how you react to it (and how readily your internal systems and policies can adapt).

Let’s start with the good news: From today, 11 October 2021, it will no longer be a problem if a registered proprietor or a mortgagee loses, misplaces, or accidently damages a certificate of title for New South Wales property. And any lost, misplaced, or damaged certificates of title will be cancelled so if you have managed to lose or spill coffee on one (or more), you will not need to worry about it for much longer.

In theory, the move to a completely electronic titles and registration system will also improve the efficiency and security of property transactions. While there is inconvenience for those that do not subscribe to an ELNO in the sense that they will need to engage an ELNO participant to carry out property transactions on their behalf, there are advantages to the ELNO system in that it has a strict set of rules and compliance requirements that all participants must (again, in theory) meet and that are aimed at ensuring a safe, secure, and transparent system for dealing with property.

Now for the bad news, which will hopefully only be bad news while we all get used to the new titles and registration system in New South Wales. As you may have gathered by reading this far into this article, a first ranking mortgagee will not receive any notice of the registration of a second mortgage over the mortgaged property on and from 11 October 2021, nor will they be able to consent to or prevent the registration of that second mortgage. That places an administrative and cost burden on the first ranking mortgagee to check the mortgaged title for any registered dealings and determine if those dealings breach the terms of any contracts it has with the mortgagor.

It also means that, in a default and enforcement scenario, the first ranking mortgagee might need to sell through the second mortgage. While this is possible under New South Wales property laws, it does make the enforcement process more complicated and time consuming for the first ranking mortgagee, particularly if the first ranking mortgagee only discovers the second ranking mortgage at the time it goes to enforce its first ranking mortgage.

Any final thoughts?

Cessation Day is almost upon us and there is no way of avoiding its impact on New South Wales property dealings and the certificate of title system in New South Wales. While there is much for a first ranking mortgagee to be concerned about from these changes, all of those concerns will, we believe, be short-lived. In the absence of being able to do anything to prevent the downsides to these changes, such as the inability to prevent a second ranking mortgage being registered, the best thing that mortgagees can do between now and 11 October 2021 is understand the scope of the changes and their impacts upon mortgagees.

And by making it to the end of this article, we humbly submit that you are off to a very good start in that understanding.