Equitable interests and the "no-caveat" trap: lessons from 1128 CG Pty Ltd v MH Affordable Homes on Kelly Pty Ltd

In a recent decision that will resonate with developers and off-the-plan purchasers alike, the Supreme Court of New South Wales in 1128 CG Pty Ltd v MH Affordable Homes on Kelly Pty Ltd [2025] NSWSC 563 has clarified the hierarchy of competing equitable interests in land.

The case serves as a warning that while possessing a "caveatable interest" might be able to protect a status quo, it does not always equate to an equitable interest strong enough to win a priority dispute, especially when a purchaser has contractually agreed not to lodge a caveat.

The facts: a tale of two sales

The dispute concerned a parcel of land in Austral, Sydney, owned by MH Affordable Homes on Kelly Pty Ltd (the Vendor). Between 2017 and 2020, the Vendor entered into numerous off-the-plan contracts with various individuals (the Off-the-Plan Purchasers). These contracts were conditional on the registration of a deposited plan by a "sunset date". Crucially, each contract contained a "no-caveat clause", forbidding the Off-the-Plan Purchasers from lodging a caveat until the plan was registered and separate titles issued for each of the subdivisions.

The development faced significant delays, the sunset date passed, and the plans for those contracts remained unregistered. Some Off-the-Plan Purchasers rescinded their contracts however 30 Off-the-Plan Purchasers did not wish to rescind. Despite the significant delays, the Vendor did not rescind the contracts, partly due to legislative restrictions under section 66ZS of the Conveyancing Act 1919 (NSW).

In October 2024, the Vendor – without disclosing the existing off-the-plan contracts – sold the entire parcel of land to 1128 CG Pty Ltd (the Site Purchaser) for $29 million. Upon entering into the contract, the Site Purchaser lodged a Caveat over the land. Because no caveats had been lodged by the Off-the-Plan-Purchasers (and no disclosure was made by the Vendor at that time), the Site Purchaser entered the contract without notice of the prior interests. Six weeks after entering into this contract, the Vendor disclosed the remaining Off-the-Plan-Purchaser Contracts, all of whom were not willing to rescind their contracts. The Vendor proposed rescission of the contract with the Site Purchaser, who did not agree. The Site Purchaser sought specific performance to compel the Vendor to complete the $29 million sale.

The key issues

1. Nature of Interest: Did the Off-the-Plan Purchasers hold an equitable interest in the land sufficient to compete with the Site Purchaser's interest?

2. Priorities: If they did, had they lost their "first-in-time" priority due to postponing conduct (ie., failing to caveat)?

3. Specific Performance: Should the court refuse specific performance based on hardship to the individual lot purchasers?

1. Caveatable interest vs. competing equitable interest

Justice Pike drew a critical distinction between an interest sufficient to sustain a caveat and an interest sufficient to win a priority fight.

While authorities like Forder v Cemcorp establish that off-the-plan purchasers have a caveatable interest to preserve the status quo, the Court held that until the condition (being the registration of the new plan) is met, that the interest is merely an "in personam" right or a "mere equity". It is not a vested proprietary interest in the land itself because the specific lots do not yet exist. Consequently, the Site Purchaser’s interest – established under the unconditional contract for the whole "existing" land – prevailed.

2. The "no-caveat" clause as postponing conduct

Even if the Off-the-Plan Purchasers had held a competing equitable interest, the Court found they would have lost priority. Before reaching this conclusion, the Court briefly considered the "first-in-time" rule, which usually gives preference to the equitable interest that was first in time. It noted the "first-in-time" rule is not mechanical and should be adopted flexibly to give preference to what is a better equity in the circumstances.

The Court found that by agreeing to a "no-caveat clause," the Off-the-Plan Purchasers had engaged in 'postponing conduct'. Such conduct could not then be the basis on which the Off-the-Plan Purchasers rely as a reason for not lodging a caveat. Their failure to caveat meant the Site Purchaser acquired its interest bona fide for value without notice of other competing interests. If it were the case that an equitable interest did exist, but a caveat was registered after the Site Purchaser's caveat, the Off-the-Plan Purchasers would have lost priority due to their postponing conduct.

3. Hardship and specific performance

The Vendor and Off-the-Plan Purchasers argued that specific performance should be refused because it would cause significant hardship to individuals who had waited years for their homes.

The Court was unsympathetic, noting that:

• The purchasers were entitled to a refund of their deposits.
  
  

• The Site Purchaser was "ready, willing, and able" to complete.
  
  

• Land is generally considered unique such as to make damages an inadequate remedy

On the last point, the Vendor and Off-the-Plan Purchasers relied on prior case authorities to argue that the "uniqueness" of land is lost in circumstances where it is purchased by a developer to be used as "trading stock". However, although the Site Purchaser was a developer obviously developing the land with an intention to make a profit, the Court was not satisfied that this was a reason for the Court to refuse to order specific performance.