From Company Title to Strata and No Returns
I start our 2020 series of articles after a visit to Noosa where I attended a Conference run by the Australian College of Strata Lawyers. Attendance is usually restricted to lawyers but, along with two other strata managers, I was offered an invitation. The conference included sessions about building defects, enforcement of by-laws, various cases from the different states, greening cities, and the collective sales of strata schemes. I will throughout the year share with you what I learned.
We manage both strata and company title apartment blocks.
I thought in this article with a broad brush I would discuss conversion of a company title building to a strata title.
Strata managers are not lawyers, so it is important that if you want to go down this path you seek out and obtain advice from lawyers and surveyors.
The first thing to remember is that company title is exactly that – a company is the registered proprietor of the land and shareholders obtain the exclusive use of their apartments and use of the common property. In strata, each owner owns the title to their own lot and the owners corporation owns the common property, which is held for the benefit of all lot owners.
For many years, company title was the poor relative to strata. Purchasing into a company title property generally requires the consent of the company. Over the years, this has become somewhat academic because consent cannot be unreasonably withheld. It was harder to borrow funds from lenders because, rather than real estate as the security, the shareholder offered their shares as security.
Strata title is governed by both the Strata Schemes Development Act 2015 (SSDA) and the Strata Schemes Management Act 2015 (SSMA)
The main objects of the SSDA are to provide for:
(a) the subdivision of land, including buildings, into cubic spaces to create freehold strata schemes and leasehold strata schemes, and
(b) the way in which lots and common property in strata schemes may be dealt with, and
(c) the variation, termination and renewal of strata schemes.
The main objects of the SSMA is to provide for:
(a) the management of strata schemes: and
(b) the resolution of disputes arising from strata schemes.
We recommend using classic.austlii.edu.au as a search engine for strata legislation, which is State specific. It is also a valuable resource for case research.
The constitution of the corporation or, assuming your company title block is old as most are, the Memorandum and Articles of Association (Constitution) is the go-to document, as is the Corporations Law.
Conversion to strata involves the subdivision of the old Real Property title (Company Title) property to a Strata subdivision, that is where the SSDA comes into play.
Assuming there is a desire to convert to strata title, here are some basic steps. The starting point will be getting all shareholders on board and, assuming they want to go ahead, the company will hold a meeting and pass a special resolution to convert from company title to strata. The Constitution/Articles will set out the meeting requirements, usually requiring 75% of the shareholding but because each Constitution is different check the temperature of the water before you jump in.
Transactions in land usually attract stamp duty. Assuming you paid stamp duty when you purchased your shares, to avoid double stamp duty each shareholder should have evidence that they paid stamp duty. A copy of the stamped Agreement for purchase with the stamp duty paid note endorsed plus a receipt for the payment goes a long way to satisfy that requirement. If you are unable to produce a stamped contract, a separate application has to be made to the Office of State Revenue confirming that you have exclusive use and rights to occupy the unit and that there is no charge in the beneficial ownership of the shares. Statutory declarations are usually required in this regard.
Make sure the company’s financials are in order, obtain extracts of ASIC records; ensure that the shareholders register is up to date.
You will need the original certificate of title of the land, which is either held by the secretary or company title manager.
Obtain a section 10.7 zoning/planning certificate (as they are now known), from your local council. Other certificates include: –
- Drainage diagram- showing the location sewer;
- Section 735A from your council setting out if there are any outstanding notices;
- Section 121 ZP Certificate – showing outstanding notices pursuant to Environmental Planning & Assessment Act;
- Section 603 Certificate – showing water rates; and
- ASIC Company Statement – showing the company directors and members.
When you have gathered the above, send them to your surveyor and ask for details of the work they will undertake, and the costs involved. The involvement of a surveyor is costly because not only are they surveying the boundaries, but they will also survey each lot and common property. Surveyors usually acquaint themselves with State and Local Environment Plans and Council’s Control plans. Your surveyor should be instructed to obtain Development Consent and they may recommend a Certifier to assist. The surveyor will manage the process until a Strata Certificate is issued.
It is always wise to have discussions with the relevant local council officers who are usually happy to supply details of the council’s requirements.
Lawyers will help with company resolutions and a strata lawyer will advise in relation to what by-laws are most suitable to your building and land.
You will also have to have to establish if your building complies with the relevant building code of Australia. Some buildings don’t and exemptions may be sought. The building will also have to be compliant with fire regulations. Consult with a fire consultant. If tenanted, they should be advised and included in the process.
The supply and meterage of water is also important. Sydney Water may require all lots to be separately metered, therefore a hydraulic consultant may need to be engaged.
It is unusual for the company’s title to be subject to mortgage/charges but it is less unusual for shares to be subject mortgage/charge. That being the case lenders, will need to consent to transition from company title to strata.
When all the things I have foreshadowed have been completed, its not a bad idea to visit the Land Registry Services offices and have a pre-inspection carried out to establish likely requisitions that may be issued.
Once registration occurs the old company title certificate of title will be cancelled, and new certificates of title will be issued – one for the common property and one for every lot owner. In substitution for the deposited plan, which would have existed previously, a strata plan will be registered and that too will show the common property, lots and unit entitlement.
Upon the registration of the strata plan the company will no longer have any use. Have the company’s accountant advise on any tax implications. Most company title buildings will not have capital gains tax issues, as the assets were acquired prior to the introduction of capital gains tax. The accountant will also provide advice about winding up the company. A lawyer specialising in company title may also assist with drafting of appropriate resolutions.
How long does this take? Usually the process takes about 12 months so the more organised one is the better both to minimise costs and time.
We hope you have found this article informative.