Below is Chapter 1 of our ‘Company Title Essentials’ booklet. To read the other chapters of our booklet, click the links below:
- Chapter 2 – Purchasing and selling shares in a company title building
- Chapter 3 – Governance and management
- Chapter 4 – The role of company managers and building managers
- Chapter 5 – Obligations, renovations and records
- Chapter 6 – Rights, duties and disputes
- Chapter 7 – Dispute resolution
- Chapter 8 – Levies
- Chapter 9 – Conversion to strata title
- Chapter 10 – Company title developments
The basics
What is company title?
Company title is a scheme of land ownership through which a company owns the title to land. Shareholders who have purchased shares in the company are entitled to exclusive occupation of a flat in a building on that land. In this regard, shareholders in a company title building do not technically ‘own’ the land. Rather, they are shareholders in the company that owns the land.
Shareholders in company title buildings do not technically ‘own’ their flat.
The purpose of this guide is to help everyone connected with company title properties in NSW to understand in detail how company title works, be they current shareholders, prospective purchasers, board members or company managers.
How are companies regulated?
Owners’ corporations of Strata Title buildings are regulated by a range of legislation that is specific to strata title. Companies, on the other hand, are governed by their constitutions, and are regulated by the Corporations Act 2001 (Cth). They may also have rights and obligations under other legislation, including the Work Health and Safety Act 2011 (NSW), the Environmental Planning and Assessment Act 1979 (NSW) and its associated regulations, and Part 3 of the Local Court Act 2007 (NSW).
However, there is no comprehensive or specific legislation regulating company title buildings as there is with Strata schemes, and the Strata Schemes Management Act 2015 (NSW) does not apply to company title.
Understanding the legal aspects of company title is much more complicated than the more straight-forward Strata schemes. Research or obtain advice if you are in doubt about an issue.
The constitution
The constitution is a binding legal document that regulates the internal management of a company. Older constitutions may be known as memoranda and articles of association.
Company constitutions can be complex legal documents. This is particularly the case for older memoranda and articles of association, which tend to be written in quite archaic English. Typically, they include the following:
- A description of the shares that have been issued in the company and the flats with which those shares are associated;
- A specification of the rights of shareholders. The most important of these is the right to the exclusive use and occupation of a flat in the building;
- Provisions empowering the company to raise levies. The company may also be able to charge interest on any unpaid levies;
- A list of the powers of the company, including the power to carry out certain works and to enter flats for certain purposes;
- Provisions regulating the purchase and sale of shares in the company;
- The duties of the company in relation to maintaining company property (i.e. the building);
- Provisions regulating the letting or subletting of company title flats;
- Provisions regulating the conduct of company meetings and elections for office holders;
- A specification of the duties of shareholders and directors; and
- A provision empowering the directors to make, amend and revoke house rules.
Many companies with older memoranda and articles of association are finding that it is difficult to apply their terms to disputes that arise in the running of contemporary buildings. Such older documents tend to have a very vague definition of the division between property that is the responsibility of the company and property that is the responsibility of shareholders. Such documents frequently suggest that companies have the power to undertake acts which would now be illegal under corporations and anti-discrimination legislation.
Companies with memoranda and articles of association prepared prior to 2001 should consider modernising them.
The house rules
The term ‘house rules’ refers to the formal policy that regulates the management of the building and the conduct of its residents on a day-to-day basis. They may also be called ‘regulations’ or ‘bylaws’. The house rules may be amended by the board from time to time, or formally adopted by a vote of the shareholders by way of an ordinary resolution.
Generally, it is preferable if the constitution provides the board with a power to issue house rules to allow it to respond quickly to developments in relevant commercial and regulatory contexts. For example, many companies were caught off guard by the advent of Airbnb, and were required to promptly issue house rules prohibiting or regulating the marketing of flats via online short-term letting platforms.
House rules often contain provisions concerning:
- The use and maintenance of residential flats. For example, the house rules may specify the maximum number of occupants that may reside in a flat at any one time, whether pets can be kept in flats, and the process associated with obtaining approval from the company for major renovations within flats. It may also make provisions regarding noise;
- The use and maintenance of common property owned by the company. For example, the house rules may specify the process for carrying out renovations and maintenance work on common property to maintain consistency in appearance;
- The process associated with the sale and letting of flats. For example, the house rules may specify how and when interviews are conducted for the approval of new shareholders and lessees by the board, and whether short-term letting through online platforms such as Airbnb is allowed;
- Administrative matters. For example, the house rules may regulate how mail and deliveries are received, make provision for moving in and out of the building, and allocate the use of common property storage facilities;
- Safety matters. For example, the house rules may make provision for security arrangements for the building, regulate the positioning and testing of fire alarms and fire extinguishers, and regulate the distribution of keys; and
- The control of security in the building, including limiting the number of keys available to residents.
Common property
Ordinarily, the constitution will provide that the company has responsibility for certain parts of the property and the shareholder associated with each unit has responsibility for other parts of the property. The property which the company has responsibility for is often called ‘common property’.
That said, it is often the case that older memoranda and articles of association do not specify the boundaries between the common property and the property which is the responsibility of a shareholder. This can give rise to disputes when shareholders or the company wish to undertake renovations.
One way in which companies can get around these difficulties is to adopt a set of renovation and maintenance rules which outline:
- What renovations to what parts of the property the shareholder is entitled to undertake, and in what circumstances they are entitled to undertake them;
- What renovations to what parts of the property the company is entitled to undertake, and in what circumstances they are entitled to undertake them;
- What parts of the property the shareholders are required to keep clean and in good repair; and
- What parts of the property the company is required to keep clean and in good repair.
Adopting such a set of rules is a practical way for companies to avoid many of the disputes that can arise, without having to amend the constitution.
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Booklet: Company Title Essentials
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The information contained in this post is current at the date of editing – 3 April 2024.