Article: what is the difference between strata title and company title?

It is difficult to imagine that almost 55 years ago strata title was a non-existent concept. Before the introduction of the NSW strata title legislation in 1961, the most prevalent way of regulating the ownership of ‘common property’ in NSW was the concept of company title.

What is Company Title?

Company title involves a company acquiring the legal ownership of the building, including the residential units within it, and the residents acquire their right to live in the building by purchasing shares in that company. The acquisition of company shares grants the shareholders a contractual right to exclusively use and occupy a specific part of the building, for example a home unit and car space, as well as the right to use common property.

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.

In contrast, a strata title owner has a legal interest in the property that he/she lives in and has a Certificate of Title as evidence of his/her ownership.

Another essential feature of company title is the company’s constitution. This document contains information about the company’s governing body, for example its directors and chairperson, it also sets out the restrictions on the shareholders’ abilities to transfer the shares and lease the unit, as well as other rules regarding voting rights, etc.

The Pros and Cons of Company Title in Comparison to Strata Title

Pros

• Generally speaking, company title units are not as expensive as strata units (perhaps because of some of the ‘cons’ listed below);
• The restriction placed on shareholders to lease 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.
• In terms of dispute resolution, the constitution may contain provisions that deal with disputes between shareholders and the board of directors or with other shareholders, which may make the dispute resolution process easier and less lengthy than the procedures applicable to strata title unit holders under the Strata Schemes Management Act (this involves mediation, seeking orders from an Adjudicator or the NSW Civil Administrative Tribunal).

Cons

• Company title does not allow shareholders to own a part of the building;
• Shareholders may be restricted in their ability to sell or lease their units;
• A shareholder may face forfeiture of shares (and the unit itself) if he/she breaches the constitution in certain circumstances;
• It is more difficult to obtain a loan from lending institutions for company title properties because most institutions have more restrictive lending criteria than for strata tittle properties.

To sum up

Notwithstanding there are more than 270,000 strata schemes across Australia today, company title buildings have not completely disappeared. Many are found in the older established areas of Sydney’s eastern suburbs such as Elizabeth Bay. When buying a company title property, bear in mind the pros and cons and don’t forget to make a proper assessment of the company’s constitution.