Is company title making a comeback?

21 September 18

Strata laws were first introduced into New South Wales in 1961. This legislation, the Conveyancing (Strata Titles) Act 1961, was unique and was later followed by similar legislation in Queensland in 1965 (Building Units Act 1965) and by 1975, all of the other States and Territories in Australia had adopted similar legislation. Other countries such as Canada, New Zealand and South Africa have since adopted similar models.

The strata legislation allowed each unit to have its own title deed so that it could be mortgaged and sold without any consent obtained from third parties. The banking industry loved the concept and strata buildings now provide a significant percentage of all housing in Australia.

How did we get on before 1961?

Prior to the introduction of the strata title legislation, blocks of units were mostly divided and sold by a concept called “Company Title”. Under this arrangement, a company owned the land and consequently the building that was constructed on the land. To “purchase” a unit in the building, you acquired a share in the company and that share gave you a right to exclusive possession of the designated unit.

In those days, every company had a Memorandum and Articles of Association (now called a “Constitution”) that set out the rules and regulations relating to that company. Unit “owners” (shareholders) were bound by these rules (many similar to our modern day by-laws). The Memorandum and Articles of Association also spelt out how disputes were to be resolved and often contained quite specific rules in relation to who could occupy the unit, whether pets were allowed, designated parking areas, etc. The board of directors of the company also had the right to approve or not approve a share transfer (change of ownership) in certain circumstances.

The single biggest problem with Company Title units however has always been bank financing. Historically, most banks have been reluctant to lend money against Company Title units.

Does a Company Title still exist today?

It does!

There are still many Company Title buildings in Sydney and I have even run across a number of Company Title buildings on the Gold Coast. These units are generally cheaper than freehold strata title units but generally do not achieve the same levels of capital growth that strata titled units achieve.

How Company Title may make a limited comeback

Like all things legal, there are pros and cons between ownership under Company Title and ownership under freehold strata title. Unquestionably, strata title has been the preferred method of subdivision of unit complexes and townhouse developments since the 1960’s, and will continue to be so.

However, some developers are again starting to have a serious look at Company Title, particularly for boutique developments pitched at owner occupiers who want the certainty that there will be no short-term letting (such as Airbnb) operating out of units in the complex. They also don’t want to be bound by extensive State strata legislation dictating how decisions are to be made or giving Courts and Tribunals the right to overturn the setup they all agreed to before they purchased.

I have recently come across one such building being constructed in Sydney. The developer only wanted to sell to owner occupiers and absolutely didn’t want any short-term letting in the building. As I understand it, the concept was well received and the development sold out relatively quickly.

As they say, horses for courses!

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Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.


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