It is likely that a majority of people who own or have dealt in real estate have never heard of Company Title as a form of real estate ownership.
Australia is considered to have one of the best titling systems for real property transactions in the world, with our Torrens Title system having been developed to replace Old System Title, which required a detailed process to investigate a ‘’good root of title’’ over a period of 30 years to establish correct transfer of property ownership. Torrens Title simplified that process via a title register in each state, which issues a deed guaranteed by the state once the transfer of ownership is officially documented and formalised. Freehold title, or ‘Estate in Fee Simple,’ provides the greatest or maximum form of ownership, granting absolute and irrevocable rights to the owner.
What is Company Title, and How Does it Operate?
Company Title is a form of ownership where a prospective purchaser acquires shares in a company, which entitles the owner to occupy a defined area (usually an apartment in a building) owned by the company. For the company to provide this form of ownership, it must acquire an interest in the property by simply purchasing the freehold, so the company has the absolute right to deal with that property. Like any company that issues shares, it must have a constitution that sets out the rules and regulations of that company and how ownership of the property will be managed.
Company Title vs. Strata Title
Strata Title was developed as a form of ownership in the 1960s, a further evolution of the Torrens Title system. It provides individual ownership of dwellings within a single development, where the main structure containing multiple dwellings represents common property. However, the ‘’space’’ or lots within the common property give individual owners freehold title. Company Title, however, pre-dates strata title and was an earlier attempt to provide individuals with a form of ownership within a typical building, usually a block of flats within inner city locations of major metropolitan areas such as Sydney, Melbourne, Brisbane, Perth, etc. (in WA it's known as Purple Title). This form of shareholding ownership still exists in older settled areas of Sydney, such as Potts Point, Kings Cross, and Elizabeth Bay. It typically comprises older style ‘’art deco’’ buildings but is less common in the other states where these properties have been redeveloped.
Company Title is not restricted to residential flat buildings; it also exists in some professional office buildings, such as barristers' chambers or medical suites in some major cities. This form of ownership has been maintained for professional purposes; as noted, the company formed can restrict via its constitution who can occupy the building so that only barristers can occupy a law chamber. Some barristers and medical specialists in specific long-established professional buildings would appear to prefer this form of ownership to promote professional synergies.
Valuing a Shareholding within a Company Title Building
When valuing a shareholding within a company title building, it is essential to obtain all relevant documentation such as the Constitution, Memorandum and Articles of Association, and a copy of the Share Certificate. The latter denotes the shares held by the owner in the company and is usually expressed within a group lot (such as share numbers 10,001 to 12,000). The Secretary of the Company will keep a record of all share transactions, and this is generally the only way to confirm any sales within the building (property databases such as RP Data and Red Square do not record non-freehold sales). In addition, a search of the freehold title will reveal the company as the registered owner, with the second schedule listing the individual owners of each lot of issued shares, providing each owner with the right to exclusive possession of their apartment (or suite in a professional building). Documentation can also reveal any restrictive rules that may apply within the constitution of residential flat buildings, such as ‘’no pets’’ or ‘’can only be occupied by two people at any one time’’.
Given that ownership within a company title building is only granted via a shareholding rather than an actual title deed, many real estate investors will baulk at the prospect of this ownership style. In addition, many lenders will not accept this form of security for a mortgage advance, which further disadvantages this form of real estate ownership. As such, company title is seen as a lesser form of ownership and will generally perform more poorly than traditional freehold title, particularly during a market downturn. Therefore, this form of ownership is not very common, especially with the advent of strata title.
Acumentis has an experienced team of valuers familiar with this unique form of real estate. Contact the team at Acumentis to ensure you are fully informed in any dealings with Company Title property.