An Introduction to Company Title: 2023 Update
or, old fashioned or genuine alternatives for multi-dwelling buildings …
Before strata titles existed, most apartments were company title schemes. Many survive today despite [or in spite of] the generally perceived advantages of strata title. Why? And are they a genuine alternative way to structure, own and run multi-dwelling buildings?
[9:55 mins estimated reading time & 1901 words]
Introduction
Before 1961 there was no real option in Australia for splitting the ownership of apartment buildings [apart from those unicorn tenants-in-common buildings which I’ll write about soon] as strata title law did not exist.
By adopting the way company ownership was split between investors, a corporate structure was utilised for stakeholders to subdivide, own and operate apartment buildings. And it worked and continues to work well.
So, many company title buildings exist [still] and interestingly a few still get created every year for special reasons. One of the oldest [and well known] company title buildings is The Astor building in Macquarie Street, Sydney.
Here’s a useful overview about overview of company title buildings to help get newcomers and more experienced stakeholders familiar or re-acquainted with some basics.
An overview
Company title is a way of dividing the ownership of a multi-dwelling building without a subdivision of land or creating separate legal titles.
So, company titles grew in popularity in the 1920s and 1930s to provide for the new demands for separate ownership of apartments.
In contrast, strata title was developed in the 1960s and allows for owners to have a direct legal interest in the real estate, defined by the registered strata plan. Strata title also introduced a fundamental difference to company title; there could be no restrictions on lot leasing and transfer of titles.
However, many company title buildings still exist today because of one or more of the following reasons:
restrictions in the land titles and/or limits in the company title building’s constitution prevent subdivision or conversion to strata title,
planning controls make it impossible [or cost prohibitive] to get a strata plan approved,
because company title buildings are not subject to strata laws, they operate with more freedom,
directors have more governance authority and control than strata committees,
they don’t need to appoint licensed strata managers,
new owners and tenants can be vetted,
shareholders/owners sometimes just prefer to stay as company title buildings, and/or
simple apathy or inaction that preserves the status quo.
And, perhaps surprisingly, we see a number of new company title buildings created around Australia every year for similar reasons.
Structuring, ownership & titling matters
Company title buildings are governed by the Corporations Act 2001 [like all other corporations].
Typically, there’s a single corporation, usually private [but sometimes public because of the size of the building] limited by shares.
There is only one title for the whole building.
The whole of the land parcel and building structure is owned by the company, so the shareholder owners don’t own the land or building directly.
There’s no common property in a company title building, but rather, the non-private or shared parts of company title buildings are reserved for shared use by the shareholder owners.
Shares in the company are split into ownership parcels to match the number of private use apartments, offices, shops, and/or parking or storage areas in the building.
Shareholder owners acquire and own the share parcels instead of a land title.
Each share parcel has attached rights to exclusively occupy the private use parts of the building and to share the use of common or communal areas with other shareholder owners. Which is the way shareholders acquire and hold their rights to their apartments.
Sometimes, the shareholding parcel is also backed up with a lease or licence agreement between the company and shareholders for their use of the private use part of the building
Shares can only be transmitted in the allocated parcels and, usually, share transfers need company approval as specified in the company’s constitution [usually by the directors].
Sometimes leasing apartments also needs company approval if so, specified in the company’s constitution.
Governance & management
The company title building is governed by its constitution [which used to be called the Memorandum and Articles of Association] and the Corporations Act 2001.
The constitution regulates the control and administration of the land and building [both private and shared] and the powers and duties of everyone involved in the company title building (including the directors).
Directors are elected annually by the shareholder owners and hold directors meetings to make decisions about the company whenever needed.
Shareholder owners also meet [at least annually] but they typically only make decisions about directors, major issues, and constitution changes. Shareholder owners don’t typically decide operational issues like insurance, service contracts, budgets, levies, etc as they are all decided by the directors. At shareholder owner meetings voting rights are proportional to the number of shares held in each shareholder parcel.
So, virtually all decisions are made by directors without requiring shareholder owner approval
Directors owe a range of duties to the company, the shareholder owners, and others just like other company directors [including fiduciary obligations, diligence, competence and conflicts of interest] which are stricter than for strata committees.
The company [via the directors] can appoint managers to assist. However company title building managers are not required to hold strata or other property licenses [as they are like company secretaries].
Unlike strata buildings, company title buildings must report annually to ASIC and pay registration fees. Plus, any significant changes [for things like directors, officers, addresses, etc] also need ASIC notification within tight timeframes.
Repairs, maintenance & finances
Since the land and buildings are the property of the company, the company is entirely responsible for its maintenance, repair and replacement.
There’s also no distinction between private use areas and shared areas, so the whole building is covered by that responsibility. However, many company title building constitutions make shareholder owners responsible for some parts of the apartments [like the interior, fittings and fixtures, carpets, etc].
There are also no express legal obligations or statements about the extent of the repair and maintenance duties like there are for strata buildings so they are less tightly defined and, therefore, harder to enforce. Rather, the directors’ maintenance and repair duties in a company title building are to preserve the company’s assets generally.
Renovations in company title buildings are more strictly controlled than in strata title buildings as they are effectively changes to the company’s building and become company property. So, there are no simple consents or by-laws for them or easy mechanisms to dispute non-approvals. Rather they need to be approved in all instances by the directors.
Rules & behaviour controls
Day-to-day and other conduct/behaviour issues in company title buildings are governed differently than in strata title buildings.
Company title building constitutions can include specific controls on behaviour and other things shareholder owners can [and cannot] do. But, more typically, those things are contained in house rules which often look a lot like strata by-laws.
However, house rules are set by the directors and can be changed without shareholder owner approval. So, they are more flexible. And, they don’t have many limitations on them or about what they can cover like for pets, children, imposing fees, banning Air BNB and/or unreasonableness. So, they can be stricter.
Failures to comply with the constitution or house rules or house rules is enforceable by the directors by notices, demands and legal actions. And, in some extreme cases, the company can restrict a shareholder owner’s ability to use building services or it could impact future approvals by the directors.
As a result, day-to-day issues are often more effectively controlled in company title buildings.
Finances
Company title building constitutions usually allow the directors to levy shareholder owners for the money needed to cover the company’s operating costs as and when required.
Usually, those levies are payable by shareholder owners according to their proportionate shareholding. But they can sometimes be differently apportioned [equally or by other fixed ratios] if that’s how the constitution was set up.
Non-payment of levies incurs interest and potential collection action and costs. And, in extreme cases, a shareholder owner could forfeit [lose] their shareholding in the company title building to cover the unpaid amounts.
Since all moneys paid by shareholder owners are company property they are pooled and there are no separate administrative or sinking/capital funds. There are no detailed regulatory requirements for special budgets, disclosures or reporting about the money although the company must produce annual financial accounts, lodge tax returns and make annual solvency declarations to ASIC.
Disputes
A company title building has independent legal existence and standing, so it can take and resist legal actions against or by third parties or shareholder owners.
But, serious internal disputes are harder to resolve as generally there’s no access to consumer tribunals or lower level courts. Most company title disputes need to fit into the Corporations Act 2001 [for issues like director’s duties, constitution disputes, oppression of monitories, etc] or other general law doctrines [like negligence, fraud, etc]. And, most company title disputes must therefore run in the state Supreme Courts.
A few states have implemented some limited provisions giving shareholder owners easier remedies as follows.
Since 2013 in New South Wales, a range of company title disputes can be dealt with by a Local Court under the Local Court Amendment (Company Title Home Unit Disputes) Act 2013.
Since 2013 in Victoria, a range of company title disputes can also be dealt with by VCAT under the Company Titles (Home Units) Act 2013.
Both state laws about company title disputes exclude corporate disputes and disputes about share sales, transfers or forfeiture.
Conversion to strata title
It is also possible to convert a company title building to strata title with sufficient shareholder owner agreement.
If you’re interested in that read my article Converting Company Title Buildings to Strata: A 2021 Update.
A quirky company title anecdote
Here’s an interesting and counterintuitive phenomenon I’ve encountered in older company title buildings.
It’s that in the older company title buildings the shareholding proportions are are often higher for the ground floor or lower level apartments than they are for top floor and higher level apartments. In other words, the shareholder parcels [and therefore voting and contributions] go down as your own higher up the building.
That’s the opposite of the situation in most strata buildings.
The reason why is that lower level apartments were more popular [and valuable] in the early days reflecting different and changing lifestyles and social attitudes to real estate as follows.
In the early 20th century apartment buildings were largely located in the city centre and day-to-day activities were based on the more people focused streets. So, having a good view of and being closer to the street was desirable as it kept you connected to the city life and it was more convenient.
Views of major cities were not highly desired since there wasn’t much to see: the city surrounds often filled with ugly docks, warehouses, factories, etc. So, there was no premium for that view.
Elevators were new and many people didn’t trust them. So, a higher level apartment meant risking the use of these new fangled contraptions or using the stairs.
Conclusions
Company title buildings are interesting survivors of Australian strata titles.
They are very different to strata title buildings for stakeholders and operate quite differently. Some differences are seen as disadvantages. However, there are countervailing benefits due to more centralised control and lower regulation levels.
So, they will that will be around for a long long time as part of our high-density future.
Francesco ...
November 30, 2023