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Company Title: What do you need to know?

By May 31, 2019 No Comments

So you’ve heard of strata title, but do you know what company title is? Despite being far less common these days, company title is still present in the eastern suburbs, especially in older apartment buildings in Coogee, Maroubra, Elizabeth Bay and Randwick.

Understanding property law is a complex process, but don’t let it deter you from entering the market. A concern that commonly arises is the debate surrounding company title, specifically, how it impacts a property’s value and management. Below I unpack what you need to know about company title.

What is it?

Prior to Strata Laws in 1961, NSW operated under company title. Properties were governed this way to ensure that company entities held ownership over their building. This system was implemented to separate a building’s ownership. However, instead of receiving claim over a specified apartment, holders purchase building shares through possession of company shares. Essentially, it allows shareholders to have exclusive rights over a portion of the apartments and common areas within the building.

Shares of company title buildings are held in groups of comparative value, based on size and location. Whilst they hold rights over the occupancy, they do not possess a title deed. Instead they are issued a share certificate.

Comparison to Strata Titles

The most significant difference is the presence of a Board of Directors. All decisions regarding tenants, renovations and the transferal of rights must pass their approval.

Furthermore, strata title tends to specify ownership of an exact apartment area. Whereas company title works based on providing shares in the company that owns the building. This permits them occupancy rights.

Restrictions and allowances

The company’s constitution dictates lease limitations, and approval needs to be received to sell or lease the property. If you are a prospective purchaser of company title it’s important to note that it can be more difficult to obtain finance for company title.

Each Board of Directors will have a unique process when distinguishing what they deem permissible. It is important to investigate the restrictions they enforce. A great place to start is by addressing common queries. Ask about what restrictions are placed on renting, renovations and the deposit required to buy shares.

It’s vital you seek further independent legal advice in relation to purchasing company title, as you would with any property purchase.

Incentives

Compared to strata, company title tends to be more affordable and comes with added benefits like insurance and no added administrative fees. Dispute resolution can be an easier process in company title versus in strata title often due to the nature of needing to pass through Director approval rather than an executive committee.  Company title buildings also typically have longer term residents, more owner occupiers and greater cordiality amongst all residents. This often equates to a more exclusive living scenario and greater control over who your neighbours are as well as ‘unneighbourly’ behaviour.

Drawbacks

Approval by the company’s board is non-negotiable. This could mean that for some Company Title Buildings (commonly referred to as ‘restricted’) they might prevent you from becoming an owner if you don’t fit the desirable criteria. This also applies to your potential tenants if you plan to lease the property. Due to the need for Director approval tenant applications are fewer, and selection is a longer process. As an investment property rent may be lower and value increases aren’t likely to accelerate at the same pace as strata titles. In saying that, many Company Title Buildings are now ‘unrestricted’.

Finally, it’s incredibly important to understand the company constitution, as breaches come with serious consequences. In extreme cases this can mean being stripped of your share and occupancy rights.

 

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