All you need to know about how company title came about

1. The Origins of Company Title & the
Challenges Facing Owners & Property
Professionals in dealing with Company
Title
12 December 2012
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2. 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
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3. 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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4. Strata Title Compared
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5. Problems with Company Title
• Many relate to
the corporate
nature of the
scheme
• Extensive power
and discretion
given to board
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6. 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
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• Common Law
– Must only act ‘bona fide’
in ‘best interests of the
company’
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7. 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
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8. 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…”
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High Court:
• Family Court cannot
enforce an assignment
of shares if directors
acting in manner
consistent with
constitution
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9. 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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10. 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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11. What is oppressive?
• Corporations Act
‘oppressive to,
unfairly
prejudicial to, or
unfairly
discriminatory’
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12. Reasonable Person?
• Wilson v Meudon Pty
Ltd
• “to be judged from the
viewpoint of a
reasonable person
associated with a home
unit company”
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• Sheldon v NRMA
• Directors to be judged
as ‘reasonable director’
in the circumstances
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13. 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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14. 4. Difficulty obtaining a mortgage
• Strata lending
– 100% +
-v• Company title lending
– = 70-85%
– IF AT ALL!
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• Why?
– Lack of security
– Reduced market
of purchasers
– Increased
administrative and
legal costs in
selling
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15. 5. Reduced property value
• Estimated sale
price:
• 10-15% less
than strata
title unit
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16. 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
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• Company title schemes
• Supreme Court or Federal
Court
• Costly
• Time consuming
• Fact-based decisions =
less surety of success
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17. 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
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18. 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
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19. Process of conversion
1. Unanimous
Approval
2. Plan of
subdivision
4. Mortgagee
approval
5. Lodgement
with LPI
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3. Stamp duty
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