The Origins of Company Title

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The Origins of Company Title & the Challenges Facing Owners & Property Professionals in dealing with Company Title12 December 2012


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


How is the scheme run?

• Incorporated entity• Board of directors• Board has extensive

powers and discretion• Governed by

constitution• Constitution = Articles

of Association + Memorandum


Strata Title Compared


Problems with Company Title

• Many relate to the corporate nature of the scheme• Extensive power

and discretion given to board


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’


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


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


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”


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


What is oppressive?

• Corporations Act‘oppressive to, unfairly prejudicial to, or unfairly discriminatory’


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


3. Lack of security of ownership

• Ownership subject to constitution

• Forfeiture of shares is a common remedy in Articles of Association


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


5. Reduced property value

• Estimated sale price:• 10-15% less

than strata title unit


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


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


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


Process of conversion

1. Unanimous Approval

2. Plan of subdivision 3. Stamp duty

4. Mortgagee approval

5. Lodgement with LPI

Education

The Origins of Company Title