Have you ever been confused about the differences between company title and strata title? Have you been told that company title may not be as good as strata title but you are not sure why? This article explains the main differences between the two so that you can make a more informed decision if ever you look to buy a property subject to company title.
Before the concept of strata title was introduced in the 1960s, company title had developed to provide for the separate ownership of apartments. For the first time, this allowed people to buy an apartment rather than a house with the majority of company title home units set up in the 1920’s and 1930’s.
Differences between company title and strata title
Solicitor Ian Williams of Williams & Co in Surry Hills explains the legal differences between company and strata title,
“Unlike with strata title, the company title owner does not have title in any real estate, but has, by virtue of the ownership of shares in the company, the right to occupy a defined area, namely a particular apartment in the building owned by the company”.
In other words, a person who buys a company title home unit receives shares in the company that owns the building and the share certificate and ownership of the shares allows that person to live in the unit. Unlike with strata title, the buyer of a company title home unit will not receive a certificate of title to the property.
Ian Williams continues,
“The company’s constitution will set out restrictions on the transfer of shares to a prospective owner, who usually must be approved by the Directors of the company. There may also be limitations on being able to lease a company title apartment.
In contrast, the strata title purchaser does not need the permission of the Owners Corporation (Body Corporate) to purchase a strata title apartment and will obtain a legal interest in the real estate comprised and defined by the registered strata plan”.
So the company board of directors must approve the sale of the property and also approve the lease of the property.
Prospective purchasers of company title units should also be aware that some lenders are reluctant to lend as much for a company title purchase.
“Most banks will consider applications against company title however there are restrictions in place that need to be considered.
The main restrictions apply to the number of units under the agreement, the amount that the bank will lend against the property with lenders mortgage insurance and the post codes that are acceptable. There are also restrictions over the contents of the company title agreement. In most cases the agreement needs to be sighted and examined by the bank.”
The maximum lending margin against a property under company title is 80%”.
Whilst unlikely in the current economic climate, lenders have been known to allow a maximum lending margin of 100% (or even higher in some cases) for strata properties.
As a result of these differences, the Sydney property market distinguishes between company and strata title by restricting the values of company title properties by as much as 10 – 20% when compared with similar strata title units.
Conversion from company title to strata title is possible although the process may be time consuming and costly.
Benefits and disadvantages of company title
Benefits of company title
• Company title apartments are generally not as expensive as comparable strata apartments.
• The residency of the company title building is controlled as, before shares can be transferred, the prospective owner must first be approved by the Directors of the company.
• It is often easier and simpler to address issues with the management of the Company Title building than with a strata title manager.
• Where renting is permitted, the tenant will more likely than not also have to be approved by the company’s Board.
Disadvantages of company title
• The value of the unit “owned” through shares is unlikely to increase at the same rate as units owned under strata title.
• Some lending institutions have more restrictive lending criteria for units subject to company title.
• 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.
• 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.