Introduction to Strata Title
The clear laws that apply to Owners Corporations regarding who is responsible for repairs and maintenance, what funds can be raised from members, how important decisions can be made and how disputes may be resolved, make converting older properties to Strata Title an attractive proposition.
Overview of Company Title
Under Company Title ownership, a Company is incorporated to purchase a property consisting of multiple flats. There is one title for the property, registered in the name of the Company which is governed by the Corporations Act 2001 and the Company’s own constitutional documents. To live in a Company Title property, you purchase a group of shares in the Company that grants you the right to exclusively use and occupy a particular flat and gives you the right to use the communal areas at the property together with other shareholders.
The Company’s constitutional documents regulate the administration of common areas and the respective powers, rights and obligations of the Company, directors and shareholders.
In a Company Title property there is no separate title for your flat. Therefore, a mortgagee is requested to take a security interest over shares and many mortgagees regard shares in a Company Title property as a lesser form of security. From a vendor’s perspective, if banks are reluctant to lend on such properties, many interested purchasers may simply be unable to obtain the necessary finance to purchase which may directly affect the value of your property.
Converting to Strata Title: Advantages & Disadvantages
The advantages may include:
- A flat or apartment (“lot”) in an Owners Corporation has its own separate land title that is readily accepted as good mortgage security whereas groups of shares in Company Title properties are generally regarded as a lesser form of security, with only a small number of mortgagees willing to lend on such properties.
- Generally, the conversion from Company Title into Strata Title will result in a higher market value for the relevant flats.
- Once the conversion is complete flat owners will no longer need to try and interpret the Company’s often difficult to understand constitutional documents. Instead, the clear powers, functions, rights and obligations of the Owners Corporation and its members under the strata legislation will apply with a broad range of resources and case law available to assist in resolving issues.
The disadvantages may include:
- Removal of certain of the Company’s rights which will not continue to apply under strata legislation for example, the right to decide who may become a shareholder in the Company or the right to forcefully sell a group of shares in certain circumstances.
- Lots in an Owners Corporation may in some cases attract higher Council rate liability than a Company Title property.
- There may land, capital gains and other tax implications; independent accounting advice should be obtained.
The Strata Title Conversion Process
The complexity and steps involved for converting to Strata Title will be driven by the existing constitutional documents of each Company Title building.
Unanimous Consent of Shareholders
Generally, the unanimous consent of all shareholders will first need to be obtained before proceeding with the conversion. If unanimous consent is not forthcoming, the conversion will likely not be able to proceed.
Comparative Review of Memorandum and Articles of Assocation
The Company’s documents will need to be reviewed into order to establish whether any alterations to the constitution are required before the conversion can proceed. If alterations are necessary, a meeting will need to be held, the necessary resolutions passed and the Australian Securities Commission notified.
Plan of Subdivison
A licensed survey will be instructed to prepare a plan of subdivision under the Subdivision Act 1988 for the property based on shareholders’ existing occupation rights of flats and/or garages, car parks and storage areas.
After consultation with all shareholders to confirm the plan of subdivision correctly show their existing rights, the plan of subdivison will be lodged with the relevant local council for approval. A schedule of lot entitlements and liabilities will also be prepared which will govern each flat owner’s voting rights and share of the common expenses.
The local council may require the Company to perform certain building improvements or amendments as part of the approval process. However, generally this should be established at the outset of the conversion process by a pre-conversion conference between the licensed surveyor and council officers.
Once the approved plan of subdivision is available, any mortgagees with existing interests in groups of shares in the Company, should be contacted to obtain their approval of the proposed conversion and approved plan of subdivision. Mortgagees will most often consent to the conversion as it will result in them obtaining a better form of security. They will require the flat owner to arrange for a registered mortgagae to be registered against the new title of the flat once the new title issued.
The approved plan of subdivision is then ldoged for registration with Land Victoria. New titles are issued for each flat (lot) and the common property. On registration, an Owners Corporation will be created of which all lots owners from time to time will be members. The Owners Corporation will become registered owner of the common property.
Transfer of Strata Titles
The titles to the new lots must be transferred to the shareholders of the Company for nominal consideration of $1.00.
The transfers must first be assessed for stamp duty before they can be lodged with Land Victoria. A statutory delcaration detailing the conversion will be filed in order to obtain an exemption from stamp duty on the transfers so that nominal stamp duty may be payable.
On Becoming an Owners Corporation
A number of statutory requirements will apply on the plan of subdivision becoming registered, including the requirements under the Owners Corporation Act 2006 to hold an inaugural meeting and effect certain insurances over the building.
Winding Up the Company
Once the Company has transferred the title of the lots to the shareholders, the Company should be voluntarily wound up by the members.
Contact Tisher Liner FC Law’s specialist Owners Corporation division if you have a query about converting to an Owners Corporation or any other Owners Corporation legal issue on T: (03) 8600 9333 or E: email@example.com. Tisher Liner http://tlfc.com.au
The content in this paper is intended only to provide a general overview. It is not intended to be comprehensive nor does it constitute investment nor legal advice. You should seek professional advice before acting or relying on any of the content.