If you’re thinking about investing in a Company Title building and renting out your unit, you need to be aware of the unique features of Company Title properties that might impact your investment.
Company Title buildings can seem like great investment opportunities as they are often cheaper than strata buildings and are located in desirable areas. However, you need to be particularly careful to ensure that you are not investing on false assumptions.
What is Company Title?
Company Title refers to a type of land ownership in which a company has the title to both the land and any developments upon the land. As the law regulating companies is the Corporations Act 2001 (Cth), Company Title buildings can govern themselves through the creation of a Constitution and House Rules. Subject to the Constitution, shareholders who own shares in the company are granted a right to exclusive use and occupation of a unit. As such, the shareholders in a company title building are not actually owners of their unit, they are just granted a right to exclusive occupation.
This differs from the more common form of shared property ownership – Strata Title. Under this structure, the title to each unit is held by the owner, with common property being owned and managed by an Owner’s Corporation. Strata schemes in New South Wales are governed by the Strata Schemes Management Act 2015 (NSW), which imposes a set of model by-laws that the Owner’s Corporation can’t alter too much.
Company Title boards and shareholders should be across their building’s Constitution and House Rules. If you aren’t sure where you stand, we can help. Call us on (02) 9199 8597 or email us.
Leasing and occupancy issues
Importantly, as Company Title buildings are not restricted by the same rules as Strata Title properties, the board of the company that owns the Company Title building is able to decide what rules and restrictions are to be placed on company shareholders (being the people who have the right to exclusive use and occupation of a unit).
Company Title boards tend to already know the importance of enforcing the company’s Constitution and House Rules. The Constitution and House Rules act as a contract between the company and the shareholders, allowing action to be taken against shareholders who do not comply with the rules. A well-drafted Constitution or set of House Rules gives the company various strategies to ensure that shareholders pay their levies on time, carry out major renovations with sufficient care, and do not use their units or common property in a dangerous or disruptive manner.
Importantly for property investors, Company Title buildings are able to determine rules around shareholders leasing out their units. The types of restrictions commonly seen on leasing are:
- Restricting leasing out units totally and ensuring all units have ‘owner-occupiers’ residing;
- Prescribing how long a shareholder must have resided within the building before being able to ‘lease’ out their unit;
- Prescribing a minimum length of time that units can be ‘leased’ for, meaning that short-stay accommodation (such as AirBNB) is disallowed; and
- Requiring potential tenants to be approved by the directors, which can make finding a tenant a more difficult process than usual.
Don’t get caught out with your investment or risk breaching your building’s rules. If you are thinking of investing in a Company Title property, contact us on (02) 9199 8597 or email us to find out exactly what you’re in for with your potential company title purchase.
Licence to Occupy
When a shareholder lets their unit to a tenant, there is no legal relationship between the tenant and the company. This means that the company cannot enforce its Constitution or House Rules against the tenant.
To tackle this issue, many Company Title boards require tenants and the relevant shareholder ‘leasing’ their unit to enter into a Licence to Occupy before the occupancy commences. This creates a legal relationship between the tenant and the company, allowing the Constitution and House Rules to be effectively enforced against tenants. Common terms in a Licence to Occupy include:
- Preventing further sub-licensing;
- Requiring compliance with House Rules;
- Limiting visitor numbers to the unit or building;
- Requiring indemnification for loss caused by negligence or misconduct; and
- Ending the tenancy if the tenant breaches the terms of the Licence to Occupy.
Enforcing the Licence to Occupy can be done through court proceedings in the Local Court of New South Wales, which has a special jurisdiction for company title residential disputes. Managing tenants is an important aspect of many buildings, especially when it comes to issues such as sub-licensing and nuisance.
Company Title shareholders should ensure that any occupancy arrangements are compliant with the Company Title Constitution and House Rules and are appropriately documented. Failure to do so could lead to adverse action against the shareholder themselves.
Company Title boards must be careful to ensure that their Constitution and House Rules adequately set out the rules regarding occupancy and licensing of units and that they are enforced consistently across all shareholders. Failure to do so could result in a costly dispute. Company Title boards should not hesitate to implement new governing documents if their existing governing documents are insufficient to manage these issues.
Understanding the ins-and-outs of Company Title occupancy arrangements can be complex. Whether you are a board member or a shareholder, we can help. Contact us on (02) 9199 8597 or email us for advice and a clear way forward.
The information contained in this post is current at the date of editing – 6 May 2024.