22 Aug Owners Corporations & Company Share Schemes – An Explanation of Terms
What is a Company Scheme?
Before 1960 in Victoria, it wasn’t possible to divide a building into separately titled lots like we do now with owners corporations. There were two schemes that allowed separate occupancies within a building, with a company playing a role similar to that of an owners corporation.
The two types of company schemes in Victoria are:
- Company Share
- Stratum Estate
Is a Company an Owners Corporation?
The legislation for all companies is the Corporations Act 2001. However, it doesn’t have specific provisions related to strata title legislation, such as insurance obligations, building maintenance, and raising fees from members. So, the Owners Corporations Act 2006, which governs Owners Corporations, doesn’t apply to companies.
Companies used to have a constitution called a Memorandum and Articles of Association, which is a contract between the shareholders and the company, working in conjunction with the Corporations Act. The constitution deals with matters like the quorum for a general meeting and the appointment of directors. The company’s management is vested in the directors as per the constitution and the Corporations Act.
A company must notify the corporate regulator, ASIC, about changes in directors and shareholders and submit an annual declaration of solvency.
What is the Company Share Scheme?
In the Company Share Scheme, all the land and buildings are owned by a company. The building isn’t subdivided into separate lots with land titles. Instead, the shares of the company are grouped, each providing exclusive occupancy rights to a specific flat and access to communal areas like stairs, driveways, and gardens. So, members don’t acquire ownership of land but hold shareholdings that entitle them to the exclusive use of a specified flat.
The company’s constitution outlines the rights and obligations of the company and its shareholders in general terms. It obliges the company to maintain the buildings, excluding the flats with exclusive occupancy, insure the buildings, and take care of common areas like gardens. The company can levy fees on its members to fulfill its obligations. Owners are required to pay these fees, maintain their flat’s interior, and follow noise and nuisance rules stated in the constitution. As the company owns the building, any alterations or renovations to a flat need the company’s consent.
Unlike an owners corporation, getting prior consent from the company is necessary for a share transfer. This is usually done at least 30 days before the settlement date to allow adequate assessment and consent. Some companies might have specific requirements, such as references or interviews for prospective purchasers. If a purchaser needs a loan, they should check with financial institutions if they’re willing to finance the share purchase. Even though shares in a Company Share Scheme aren’t a transfer of land, the State Revenue Office applies duty to the share transfer at the same rate as a transfer of land.
What Is Stratum Estate and How Does It Differ From a Company Share Scheme?
In Victoria, the Stratum Estate scheme allowed the subdivision of buildings similar to owners corporations. This was possible from 1960 to 1967, when it was replaced by the Strata Titles Act 1967, which introduced bodies corporate, now known as owners corporations. Any Stratum Estate created remained in operation and didn’t convert to a body corporate with the introduction of the Strata Title Act.
In the Stratum Estate scheme, the building was subdivided, and there is a certificate of title for each lot, just like in an owners corporation. However, this scheme didn’t include an owners corporation, so it was necessary to incorporate a company to perform functions similar to an owners corporation.
The company’s constitution deals with matters like meetings, directors, and share transfers. The rights and obligations of the Service Company (the incorporated company) and each owner are set out in a document called the Service Agreement. The Service Agreement obliges the company to maintain the residual land (common property), insure the buildings, and have the power to levy fees to meet the company’s obligations, which owners must pay. The Service Agreement also has rules regarding conduct, such as noise, nuisance, and properly maintaining the lot.
Since there is a plan of subdivision, the boundaries of lots may be determined, and each owner is responsible for maintaining their lot. This is different from a company share scheme where there’s no separate legal lot because the building isn’t subdivided. Despite owning lots in a Stratum Estate, there may be controls on renovations and alterations, usually requiring the prior written consent of the Service Company.
A significant distinction for a Stratum Estate is that each lot has a certificate of title, allowing owners to mortgage the title. In this respect, a Stratum Estate is similar to an Owners Corporation. However, a company is still required to manage and administer the residual land (common property), similar to a company share scheme, and this requires compliance with the Corporations Act and the rules outlined in the Service Agreement. The shares in the Service Company represent an interest in land, and only the lot’s owner can hold the shares and be a member of the company.
The owner of a lot may lodge the shares and/or the Service Agreement with the Registrar of Titles. If a document is lodged, it doesn’t require a share transfer or the preparation of a new Service Agreement when the lot changes ownership.
Can a Company Become an Owners Corporation?
Yes, it is possible to convert either company scheme into a more modern plan of subdivision and create an owners corporation in place of the company. However, this conversion may require compliance with current planning and building regulations, including fire compliance. There might be some impediments to conversion, like inadequate parking for cars or prohibitive compliance costs. If a company scheme is considering such a conversion, it’s best to seek advice from a legal practitioner experienced in the area to make a well-informed decision.
We know that strata can be complex. At Turnbull Cook, we strive for simplicity. If you have further questions around strata management, fees & responsibilities, insurance & cleaning plus lots more, read our Strata FAQs.
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