Sunday, September 20, 2020

What is Company Title?

what is Company Title

Company title is a form of ownership that pre-dates strata title, which was introduced in New South Wales in 1961. Before 1961, buyers used company title to effectively purchase shares in a building, which provided them with exclusive use and occupation of a unit, and shared use of common property.

Company title and strata title are not the same thing! They are quite different legal beasts and come with their own pros and cons.

It’s important to do some research and it’s vital to know the differences. Become familiar with how life under strata or company title works – and what limitations there might be – BEFORE making a decision to buy.

What is company title?

Before strata title was introduced, company title was a popular way to provide for separate ownership of apartments. Buyers effectively purchased shares in a building, which provided them with exclusive use and occupation of a unit, and shared use of common property (subject to the constitution of the company).

Company title is less common than strata title, as most buildings have chosen to change to strata title. But in some areas, like the art deco apartment blocks of Sydney’s Elizabeth Bay, company title remains the norm.

The shares in the company correspond to the comparative value of the units as perceived by the original developers based on the size and location of the units in the building. Unlike with strata title, the buyer of a company title home unit does not receive a certificate of title to the property. Instead, they receive a share certificate.

This means that a shareholder does not actually own the unit that he/she lives in, but rather has acquired a licence or right to occupy part of the residential building that is owned by the company. The shareholder’s share certificate is evidence of his/her exclusive use.

Another essential feature of company title is the company’s constitution. The company constitution sets out the rules for the transfer of shares, voting rights, information about the company’s governing body and it also sets out the restrictions and the various limitations of share ownership. Before considering buying into company title you should seek independent advice on a company’s constitution

In contrast, Strata Title was developed in the 1960’s and allows for a legal interest in the real estate, defined by the registered strata plan, to be purchased. The purchaser receives a Certificate of Title for the lot number (of the Strata Plan) that they have purchased.

“You can’t rent in a company title building” or “the banks won’t lend against company title”. These are generalisations, which, in fairness, are sometimes true. They are also sometimes well and truly false.


Read related: Company Title – Sydney residents consider suing local council


Before buying into company title

Before buying into a building with company title you should check the constitution of the corporation for any restrictions, and seek independent advice on any potential legal and financial implications.

For example:

  • Are there any restrictions on who can be approved to purchase the shares? (Does being a former bankrupt or a minor criminal infringement preclude board approval)?
  • Is renting/leasing permitted? Strictly speaking, you would be the tenant and by renting/leasing you would be subletting your unit. Some buildings completely prohibit renting (that is, the shareholder must be in residence).
  • If renting (subletting) is allowed, what are the restrictions?
  • Does the tenant need to be approved by the company board?
  • Is there any rent control conditions? (Some constitutions stipulate a minimum or maximum weekly rental price. A minimum rental price may be stated to ‘control’ the ‘quality’ of a tenant)
  • Is renting allowed from day one or after a set exclusion period of ownership? (for example, renting is not permitted in the first 12 months of ownership)
  • Is there a time limit to how long a unit may be let or how long the same tenant can stay? (for example; a unit can only be leased for a period of five consecutive years before returning to owner/occupied or the same tenant can only lease for three years maximum)?
  • Does the constitution limit or restrict the level of equity/deposit that may be taken to buy shares in the company.
  • Are there restrictions on updating or renovating the apartment/unit? (Some building control the style/plan of any renovations to maintain building character)
  • Under what conditions, if any, can the board resume the company shares (For example, can the board force a sale of shares or resume the shares)

You may find that some company title buildings are quite restrictive and others will allow you to do whatever you please with your company title.

Pros & Cons of Company Title

Pros:

  • Value: Properties can represent good value for money.
  • Cheaper: Company title apartments are generally not as expensive as comparable strata apartments. (perhaps because of some of the ‘cons’ listed below)
  • Investment return: Investors can make easy money by buying into a company title block that is later changed to strata title, as this change will often add instant value to the property.
  • Residency approval: The prospective owner must first be approved by the Directors of the company. Great if you are a director or have influence over directors.
  • Occupied by owners: The restriction placed on shareholders to lease/rent the property means that a company title unit is generally predominantly occupied by owners and permanent residents. This reduces the likelihood of problems caused by short term letting, noise levels and illegal parking.
  • Dispute resolution: The constitution for company title properties may contain simple dispute resolution processes that make the process shorter and easier than Strata Title. Strata disputes that can involve lengthy mediation and adjudication from NSW Civil Administrative Tribunal (NCAT).

Cons:

  • No title: Owners don’t own the title, but simply a “share” in a company that owns the title. Under company title what is transferred is a group of shares.
  • Harder to get loans: Historically some banks have been reluctant to lend money for company title units, even more so in the current environment. Some lenders will only loan on a case-by-case basis, or require a particular loan-to-value ratio.
  • Longer to sell: Because of financing terms, company title properties often sell more slowly than strata title properties.
  • Lack of consultation: Company directors don’t have to consult shareholders, even on big issues.
  • Onerous constitutions: A company’s constitution can sometimes be onerous and even arbitrary. For example, it might limit who can buy into the property, whether the property can be rented, what changes can be made to the property, or even how much buyers can borrow.
  • Lack of capital growth: The value of the unit owned through shares is unlikely to increase at the same rate as units owned under strata title.
  • Approval of incoming purchaser: The company directors must approve the incoming purchaser of the company title unit and this can restrict the size of the market for the seller.
  • Forfeiture of shares: A company title owner would be advised to be thoroughly familiar with the company’s constitution as failure to comply with the constitution may have potentially serious consequences, including the forfeiture of the right to occupy the property.
  • Restricted Leasing: Shareholders may be restricted in their ability to sell or lease their units.

We hope that this article provided clarity around company and strata title.

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