Caveat Loan Agreements: The Clauses to Read Before You Sign
What a caveat or private loan agreement contains, clause by clause: the charging clause, default interest, events of default and what you sign with it.
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Caveat Loan Agreement · Default Clauses · Before You Sign
The agreement lands in your inbox the afternoon before settlement, it runs to dozens of pages, and the deal falls over if you do not sign. This is the clause by clause read of a caveat or private loan agreement from the borrower's side, so you know which pages to slow down on.
Quick Answer
A caveat loan agreement is the contract behind a private loan secured by a caveat, and the clauses that decide your risk are the charging clause, default interest, the term and extension terms, the events of default and the documents you sign alongside it. Read those first, ask the lender to confirm the net amount you will receive in writing, and have your own solicitor explain the rest early enough to change something before you sign.
Also called: private lending agreement, private loan agreement, loan contract. A caveat loan agreement is a private loan agreement whose security is a charge protected by a caveat rather than a registered mortgage.
What is in a caveat or private loan agreement?
A caveat or private loan agreement sets out who is lending to whom, how much you actually receive, what it costs, how long you have the money, what the lender holds as security and what happens if something goes wrong. The drafting style changes between private funders, but the parts usually arrive in the same order:
- Parties and guarantors. The borrowing entity, every guarantor, and sometimes a security provider who owns the property but is not the borrower.
- The advance and the net amount. The loan amount, then what is deducted at settlement before any money reaches you.
- Interest and default interest. The ordinary rate, how it is paid, and the higher rate that applies after a default.
- Fees. Establishment, extension, late payment, discharge and the lender's legal costs.
- Term and extension. The repayment date and whether it can move.
- Security and the charging clause. What property is charged and what the caveat protects.
- Events of default and enforcement. What counts as a breach and what the lender can do about it.
- Costs and indemnities. Who pays when things go wrong, usually you.
The parts matter less on their own than in the way they connect. The fee clause reads differently once you know when default interest starts, and the security clause reads differently once you know how wide the events of default are. That is why a loan agreement is best read with the default clause open beside it. If you want the product itself explained first, how a caveat loan works from application to discharge is covered in our caveat loans guide.
| Clause | What it does | Question to ask before signing |
|---|---|---|
| Advance and net amount | Sets the loan amount and lists what comes out at settlement before funds reach you. | What lands in my account after fees, prepaid interest and costs are deducted? |
| Interest and default interest | Sets the ordinary rate, how it is paid, and the higher rate once you are in default. | When does the default rate start, and does it apply to the whole balance? |
| Fees | Lists establishment, extension, late payment, discharge and legal fees. | Which fees are payable even if the loan is repaid early? |
| Term and extension | Fixes the repayment date and whether, how and at what cost it can move. | Is an extension at the lender's discretion, and what does it cost if granted? |
| Charging clause and caveat | Gives the lender an interest in the property that the caveat protects on the title. | Which properties are charged, and can the lender require a registered mortgage later? |
| Guarantee | Makes directors or other people personally liable for the debt. | Is the guarantee limited, and which personal assets can it reach? |
| Events of default | Lists the breaches that let the lender call in the loan. | Which defaults give me a chance to fix them, and which take effect straight away? |
| Enforcement and costs | Sets what the lender can do after a default and who pays for it. | Who pays the lender's enforcement and legal costs, and are they limited to reasonable costs? |
What does the charging clause give the lender?
The charging clause gives the lender a charge over your property, an interest in the land that secures the debt, and the caveat is the notice on the title that protects that interest. Without the charging clause behind the caveat, the lender would have nothing on the title to protect.
What it lets the lender do is mostly about stopping things. Once the caveat is lodged, most new dealings on the title cannot be registered without the lender's consent or the caveat being removed. In plain terms, you cannot sell or refinance that property without paying the lender out or dealing with it first.
What it does not do is turn the lender into a registered mortgagee. A caveat on its own does not carry the same statutory power of sale that a registered mortgage does, which is why the charging clause usually comes with extra powers: a right to require you to sign a registrable mortgage, or an irrevocable power of attorney that lets the lender sign one for you after a default. Read those powers as carefully as the charge itself.
Two details deserve a slow read. First, check whether the charge is limited to the property you offered or reaches every property you, or a guarantor, own now or buy later. All-property charges are common in private lending, and they change what is at risk. Second, if the property already carries a bank loan, check whether your existing mortgage lets you grant another charge. Many first mortgages need first mortgagee consent before a further charge is given, and granting one without it can put you in default with your bank as well.
How do the interest, default interest and fee clauses work?
The interest clause sets the ordinary rate and how it is paid, the default interest clause sets a higher rate once you are in default, and the fee clauses set what you pay at the start, during the term and on the way out. Each one has a trigger, and the triggers are where the cost hides.
- How ordinary interest is paid. Monthly, prepaid from the advance at settlement, or capitalised into the balance. Prepaid interest is deducted before you receive anything, so it shrinks the net amount.
- When default interest starts. Some agreements start it on the first missed payment, others at the end of the term, others only after a notice. Look for the exact words.
- What default interest applies to. Default interest on the whole balance is common, though it varies by agreement: the higher rate is charged on the full debt, not only on the late amount.
- Fees with their own triggers. Late payment fees, extension fees, variation fees and a discharge fee each have a trigger. Some are payable even when the loan is repaid early.
- Costs and indemnities. Most agreements make you pay the lender's legal and enforcement costs. Check whether those are limited to reasonable costs.
Default interest is not a revenue line the lender expects to earn. It is the pressure that keeps a short loan short. That is exactly why it bites hardest on a borrower whose sale or refinance slips by a few weeks, because the higher rate typically runs on the entire balance until the loan is repaid. The full cost of a caveat loan, line by line, is set out in what a caveat loan costs, so this post does not repeat the totals.
What do the term, extension and early repayment clauses say?
The term clause fixes the date the whole loan must be repaid, the extension clause says whether that date can move and at what cost, and the early repayment clause says what you still owe if you repay sooner. On a short private loan, those three clauses decide whether a delay is an inconvenience or a default.
Most private agreements leave an extension to the lender's discretion. That usually means an extension fee, sometimes a new rate, a fresh valuation and a written variation that you and every guarantor sign. If the agreement is silent, assume there is no right to extend at all. Our guide to caveat loan term extensions covers how those conversations typically run.
Early repayment is the clause people skip because they plan to repay early. Many private agreements carry a minimum interest period, so repaying in the first weeks or months may still cost the minimum. Prepaid interest is not always refunded either. Check both before you count on early repayment as a saving.
What counts as an event of default, and what can the lender do next?
An event of default is any breach the agreement names that lets the lender demand repayment and move toward enforcing its security. Most agreements list the events of default in one long clause, and the list is usually wider than borrowers expect:
- Non-payment. A missed instalment, or the loan not being repaid on the maturity date.
- A breached covenant. Not insuring the property, not paying rates or land tax, or dealing with the property without consent.
- Insolvency events. Administration, liquidation or bankruptcy of the borrower or of any guarantor.
- A false statement. Anything in the application or declarations that turns out to be wrong or misleading.
- Cross default. A default under another loan, including your first mortgage, counted as a default under this one.
Once a default happens, the agreement typically lets the lender issue a default notice, start default interest, accelerate the loan so the whole debt is due at once, and charge its costs to you. The default that bites most often is the plain one: the term ends before the sale or refinance that was meant to repay it.
What has to happen before a lender can sell the property?
A lender usually has to give formal notice and a period to remedy the default before it can take possession or sell, and the steps are set by the property law of the state the land is in. Where the lender holds only a charge and a caveat, it may first need to register a mortgage under the powers in the agreement, or seek a court order, before a sale can go ahead. The notice periods and steps differ between states, so the moment a default notice arrives, take it to your solicitor rather than waiting for the next letter.
What else do you sign with the loan agreement?
What you sign alongside the agreement usually includes a business purpose declaration, a guarantee, the independent legal advice certificate, an authority or power of attorney and a consent to the caveat. Each one has its own job, and some reach further than the loan agreement does.
- Business purpose declaration. Your statement that the loan is for business or investment purposes. It is the basis on which the loan sits outside consumer credit rules, so it must be true. A declaration the lender knew, or should have known, was false does not keep the loan outside the Code (National Credit Code, s 13, "Presumptions relating to application of Code"). When the security is your own home, how lenders read that declaration is covered in our post on a private home loan for an owner-occupied property.
- Director or personal guarantee. A promise that you will pay personally if the company does not. A director's guarantee often reaches the family home, and our director's guarantee guide explains what it puts at risk.
- The independent legal advice certificate. Your solicitor's certificate that the documents were explained to you. Every guarantor normally needs their own.
- Irrevocable authority or power of attorney. Lets the lender sign documents in your name, such as a registrable mortgage, after a default.
- Caveat consent and settlement directions. Your consent to the caveat being lodged, and directions telling the lender where to pay the advance.
The certificate is the one most often rushed. A solicitor cannot meaningfully explain a long agreement in the hour before settlement, so ask for the full pack as early as the lender will release it.
Which clauses can be challenged as unfair or a penalty?
Clauses in a caveat or private loan agreement can be challenged as unfair contract terms when the agreement is a standard form small business contract, and default charges can be challenged as a penalty when they are out of all proportion to the lender's legitimate interest. A clause can be challenged, not ignored: until a court or the lender agrees otherwise, assume every clause binds you.
According to ASIC's guide to unfair contract term protections for small businesses (read October 2026), the protections cover standard form contracts for financial products and services, including business loans. At the time of writing, a business qualifies if it has fewer than 100 employees or turnover under $10 million in the last income year, and for financial products the upfront price payable must be $5 million or less. ASIC's examples of potentially unfair terms include a default fee out of proportion to the lender's loss and a lender's right to change any term on short notice without giving the borrower a reasonable chance to exit.
Separately, courts look at whether a default charge protects a legitimate interest of the lender or is out of all proportion to it. A higher rate after default is common and is not a penalty on its own. Whether a particular clause crosses either line is a question for your solicitor, not your broker. Terms that change between the offer and the signed agreement are a related trap, covered in our post on private lender term sheets and who is funding, and the wider process is in how private lending works in Australia.
Works
- The net amount is confirmed in writing before signing
- Default interest has a clear, stated trigger
- Extension terms are written in, not left to a phone call
- The charge covers only the property offered as security
- Your solicitor and every guarantor have the full pack early
- The term ends after a realistic sale or refinance date
Stalls
- The pack arrives on settlement morning
- The charge reaches every property you or a guarantor own
- Default interest runs on the whole balance from the first late day
- The lender can vary terms on short notice with no right to exit
- Your first mortgagee has not been asked about a further charge
- The repayment date sits before the exit can realistically happen
If you are weighing a private loan and want the agreement read against your exit before you commit, check your eligibility first or see how we place private lending and caveat loans for business owners. More guides for owners are in the Business Owners Hub.
A caveat loan agreement is short-term money with long consequences if it is read in a hurry. The charging clause behind the caveat decides what the lender can reach, the default interest and fee clauses decide what a late exit costs, the events of default decide when the lender can act, and what you sign alongside the agreement decides who else is on the hook. Read those parts first, ask the questions in the table, and get your own solicitor's advice early enough to change something.
Key takeaway: Ask for the full agreement pack early, read the charging, default and extension clauses first, and make sure the repayment date sits after a realistic exit before you sign.Frequently Asked Questions
A caveat loan agreement contains the terms of a private loan secured by a charge over property that the lender protects with a caveat. It sets out the parties and guarantors, the advance and net amount, interest and default interest, fees, the term, the charging clause, the events of default and what the lender can do after one. It is usually signed with a guarantee, a business purpose declaration and an independent legal advice certificate, and the term itself is explained in our loan agreement glossary entry.
A private lending agreement is the contract for a loan from a private funder rather than a bank, setting out the amount, cost, term, security and default terms. When the security is a charge protected by a caveat it is often called a caveat loan agreement, and when it is a registered mortgage it sits behind a private first or second mortgage. If the lender is a single person rather than a fund, see borrowing from a private individual for what changes in the paperwork.
A caveat loan agreement can affect your existing mortgage, because many first mortgages restrict further charges over the property without the first lender's consent. Granting a charge without that consent can be a default under the first mortgage, and the caveat itself will show on the title. Check your current loan terms and whether first mortgagee consent is needed before you sign.
The documents you sign with a caveat loan agreement usually include a business purpose declaration, a guarantee from directors or other owners, an independent legal advice certificate, an authority or power of attorney, and a consent to the caveat. Some lenders also ask for settlement directions and first mortgagee consent. The guarantee often has the widest reach, so read our director's guarantee guide before you sign one.
Default interest in a loan agreement can be a penalty if it is out of all proportion to the legitimate interest the lender is protecting, and a court can refuse to enforce it in that case. A higher rate after default is common and is not a penalty on its own; the question is its size and how it is triggered. Whether a particular clause crosses that line is a question for your solicitor, and the full cost of a caveat loan is broken down in what a caveat loan costs.
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