Company Title - Tips and traps
You have found the perfect apartment but notice that it is company title rather than strata title... what are the implications? We explore below many of the pros and cons of buying and selling company title property as well as why these apartments are different from their strata counterparts.
With thousands of company title apartments in New South Wales with little prospect of conversion to strata title it is important to understand how company title affects the property’s value, its mortgage capacity and the rules and obligations that can come with ownership.
The basics - company title versus strata title
"Company title" and "strata title" are two totally different ways of owning residential units with totally different consequences for owners.
Everyone is familiar with strata title – you buy a Lot in a Strata Plan and get a certificate of title as any other Torrens title lot has. The common areas of the building (for e.g. the lifts, gardens, pool) are owned by the owners corporation (all the owners of the building) and these areas are known as “common property”. Each unit owner acquires a freehold interest in real estate by purchasing that unit.
In a company title building, the land and the building are owned by a company. That company issues classes of shares in relation to the units and car spaces and with those shares come certain rights such as the right to exclusive occupation of the unit or use of the car space, together with the non-exclusive right to use other parts of the building (such as the lifts, gardens and pool). Instead of purchasing an interest in real estate, the purchaser of company title property acquires the shares. Upon completion of the contract, the purchaser becomes a shareholder in the company and receives a share certificate for the purchased shares.
The rules - company articles of association versus strata by-laws
In a strata title building you have to comply with the by-laws. With company title the management of the building and its residents is governed by Memoranda and Articles of Association and not by current strata legislation.
Company title buildings are run by a board of directors elected from the shareholders at the annual general meeting. The board of directors manage the company’s affairs in accordance with the Articles of Association, which vary from building to building. Unlike strata title units, which are all subject to the Strata Schemes Management Act 2015, no two company title buildings are subject to the same Articles of Association. This creates inconsistency for purchasers.
So far so good, you say. Who cares? How different can it be from strata title? Well, read on!
Can I keep Fido in my company title apartment?
Many company title buildings have blanket bans on keeping pets in their buildings. As the strata legislation does not apply, company title buildings are able to maintain this position. This was recently made clear in the landmark decision of the Court of Appeal in Cooper v The Owners – Strata Plan No 58068  NSWCA 250.
Can I rent out my company title apartment?
Another common restriction with company title units is that shareholders cannot use the unit for investment purposes. Many company title buildings prevent renting or restrict to certain circumstances – for example, only shareholders who have lived in the building for more than 2 years can rent out their unit. There are often other stipulations, such as the need for prospective tenants to be interviewed and approved and shareholders required to pay a year’s levies in advance. These restrictions are legitimate and are often enforced.
Don’t even think about short-term letting. If you try that, you can be certain that the board will seek an injunction from the court to prevent you from doing that.
Run for the hills, you say? Not necessarily! If you want to live in a building which is owner-occupied and well-maintained, then this company title unit may be for you.
Can I mortgage company title property?
Yes, but it may prove to be more difficult than obtaining a mortgage for strata (and non-strata) real estate. Some lenders are less willing to assist with a mortgage over a unit in a company title scheme and those who will assist may offer less debt and more stringent requirements. The lender’s security will be in the nature of an unregistered mortgage over the shares in the company rather than a registered mortgage over real property and some lenders consider this position to be less secure.
The flow on effect of this is:
the market for properties under company title tends to be smaller;
prices for company title properties tend to be lower (comparative to equivalent properties under strata title); and
the pool of prospective purchasers for company title properties tends to be lower.
Selling company title versus strata title – who can stop me?
Often, shares cannot be sold/transferred without the approval of the board of directors. For this reason, most sale contracts will be subject to the board approving the prospective purchaser by conducting an interview and requiring personal references. Some companies afford their directors the right to refuse approval without giving reasons. Other companies limit the right to refuse transfers to persons who are not ‘respectable and responsible’, conferring on the board discretion to block the transfer of shares. This requirement for approval is in sharp contrast to strata title where owners are not restricted by the owners corporation in respect of the sale of their units to prospective purchasers.
Where to from here?
Given that company title transactions are relatively infrequent, vendors and purchasers can face problems when buying and selling.
If you are considering buying or selling a company title apartment, Bartier Perry can assist you in preparing a contract for the sale of shares (where you are the vendor or an executor of an estate) or in reviewing a contract for the sale of shares (where you are the purchaser). If we can assist, please reach out.