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All you need to know about how company title came about
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© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au
The Origins of Company Title & the Challenges Facing Owners & Property Professionals in dealing with Company Title12 December 2012
© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au
What is ‘company title’?
• Pre-dates first strata legislation in 1961
• First form of ‘horizontal subdivision of airspace’
• Investors purchase shares which give a contractual right of exclusive use
• Contractual right not property ownership
© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au
How is the scheme run?
• Incorporated entity• Board of directors• Board has extensive
powers and discretion• Governed by
constitution• Constitution = Articles
of Association + Memorandum
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Strata Title Compared
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Problems with Company Title
• Many relate to the corporate nature of the scheme• Extensive power
and discretion given to board
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1. Difficulty Assigning
• Articles commonly require permission of board
• If not then can use discretion
• Applies to sale of shares and any short-term assignments
• Common Law– Must only act ‘bona fide’
in ‘best interests of the company’
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Magill v Santina [1983] • Shareholder requested
permission to have grandson as tenant
• Under market value as grandson suffering financial difficulty
• Board of Directors refused tenancy on the basis that tenants would not treat the building the same as owners
• Upheld by NSW Supreme Court of Appeal
© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au
Ascot Investments v Harper [1981]
Family Court Act 1975 • S 80 ‘General power of
court’ • May: • “order that any
necessary deed or instrument be executed…”
High Court:
• Family Court cannot enforce an assignment of shares if directors acting in manner consistent with constitution
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2. Oppression
• NSW Law Reform Commission:
“the companies involved are usually small private companies in which the minority shareholders are particularly prone to the oppressive conduct of the majority”
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How does it occur?
• Board of directors has powers and discretion given by constitution
• Rarely considered oppressive if acting in accordance with constitution
• Re M Dalley: being a minority does not = oppression
• Re G Jeffrey: inability to dispose of shares does not = oppression
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What is oppressive?
• Corporations Act‘oppressive to, unfairly prejudicial to, or unfairly discriminatory’
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Reasonable Person?
• Wilson v Meudon Pty Ltd
• “to be judged from the viewpoint of a reasonable person associated with a home unit company”
• Sheldon v NRMA
• Directors to be judged as ‘reasonable director’ in the circumstances
© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au
3. Lack of security of ownership
• Ownership subject to constitution
• Forfeiture of shares is a common remedy in Articles of Association
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4. Difficulty obtaining a mortgage
• Strata lending – 100% +
-v-
• Company title lending– = 70-85% – IF AT ALL!
• Why?– Lack of security–Reduced market
of purchasers– Increased
administrative and legal costs in selling
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5. Reduced property value
• Estimated sale price:• 10-15% less
than strata title unit
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6. Lack of dispute resolution services
• Strata Schemes Management Act
• S 123 – person may apply for order to CTTT
• S 128 – person may apply for mediation
• S 125 – mediation must be attempted
• Company title schemes• Supreme Court or
Federal Court
• Costly• Time consuming• Fact-based decisions =
less surety of success
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Sale of company title units
• Manager’s must:– Organise resolution of board in accordance with
articles– Complete ‘Article 30 Certificate’ to ensure due
diligence – Issue share certificates– Register transfer of shares with ASIC
© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au
Converting to Strata Title
• Benefits:– Greater security for
owners– Access to CTTT and
mediation– Larger market of
purchasers– Greater availability of
financial lending– Increased property
values
© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au
Process of conversion
1. Unanimous Approval
2. Plan of subdivision 3. Stamp duty
4. Mortgagee approval
5. Lodgement with LPI
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