It is often difficult for a developer to unlock the value of land by using strata title. Sometimes, the terms of a development approval or other planning instrument may prevent strata subdivision. At other times, the costs associated with a strata subdivision can be prohibitively high.

A new company title scheme vs. strata title

In these circumstances, many developers are exploring company title as an alternative to strata title. Land is not subdivided in a company title scheme. The whole of the land is owned by a company who issues shares to residents and investors. Those shares entitle the shareholders to occupy, or earn rent from, a unit in a building.

In a company title scheme, the shareholders own shares, but do not own the land or any airspace. This gives company title schemes a greater degree of flexibility than strata schemes, as well as avoiding the need for a subdivision. They provide a great opportunity to innovative developers who are looking to develop new products for a rapidly changing residential market.

Regulatory Issues of a new company title scheme

A developer who wishes to issue or sell shares in a new company title scheme to retail and wholesale investors may have to comply with the disclosure requirements in ss 706 and 707 of the Corporations Act 2001 (Cth) (‘Corporations Act’). This is a complicated process which could require the developer to prepare a prospectus or offer information statement.

Such a developer who wishes to issue or sell shares in a new company title scheme to retail and wholesale investors may also hold an Australian Financial Services Licence (‘AFSL’) under s 911A of the Corporations Act. Holding an AFSL requires the developer to comply with a number of complicated and expensive regulatory requirements targeted at financial services professionals. These costs can make the development uneconomical.

The Australian Securities and Investments Commission (‘ASIC’) gives certain companies operating company title schemes relief from licensing and disclosure requirements. Developers who are proposing to create company title home unit schemes in which each shareholder has a right to exclusive occupancy of a home unit may be able to make a ‘standard’ application in line with ASIC’s existing policy.

Those who are proposing to create more complex company title schemes in which each shareholder has a right to receive rent from a home unit but is not entitled to occupy the home unit himself or herself must make a ‘novel’ application for relief. These are more difficult and expensive to make, although we have had success in making such an application on behalf of a client of ours in the past.

Financial Issues

A developer who wants to set up a new company title scheme will need to think carefully about the arrangements that they have in place to finance any construction costs. It is important to get legal advice on the most appropriate way to structure any project financing, and how to ensure that the company which will operate the scheme has the benefit of any representations or warranties give in the construction contract.

They will also need to think about the ability of prospective residents or investors to obtain a loan to purchase their shares.

Tax Issues

A developer who wants to set up a new company title scheme will also need to get specialist tax advice. There are a number of issues relating to land tax, stamp duty and capital gains tax which require careful planning.

Get in touch

Please get in touch on 02 9331 0266 or at john.morrissey@jfmlaw.com.au if you are a developer looking to explore the possibility of setting up a company title scheme.