Should we convert from company to strata title?

It is going to cost a LOT more than $10,000 per unit. The apartment block has to be surveyed, legal papers drafted and meetings held and resolutions voted upon.

Are all owners on board with the conversion? I can’t actually understand why you are self managing. If dealing with tradespeople, council etc. is the issue, then have a Directors meeting and appoint a strata manager to take over the management of the block!

It doesn’t matter that you are Company Title. Strata managers service Company Title also! The manager will be responsible for the account keeping, ASIC notifications and the holding of the AGM every year. Call a few up and ask them to provide you with a quote and a spec on the service they will provide before deciding who to go with.

If it doesn’t work out with the chosen one, then you can vote to change at a subsequent AGM. You no longer have to pay the bookeeper and accountant as the strata manager should be performing these functions. At the last Company Title unit block I owned a unit in, finance for a mortgage wasn’t an issue for anyone and the units were selling for a mint (even unrenovated).

If you do go ahead with conversion, be aware that it is a long, complicated and expensive process.

To start with, you should take the time to ensure that each of the shareholders is able to establish that stamp duty was paid on the contract by which they acquired their shares. Without this proof, stamp duty can be payable on the historical share transfers prior to the conversion being able to take place.

The first step is to ensure that enough of the owners are onboard with the idea to convert to strata title.

You will need to get at least 75% of the shareholders (or, if a poll is called, 75% of the shares) to vote in favour of the conversion.

That said, in reality, you really need all of the shareholders to be behind the conversion. If one or more shareholders hold out against the conversion, the costs involved will significantly increase. Formal conversion is a two-step process:

1. First the members must resolve to convert from company title to strata title; and
2. Secondly, the members must lodge a strata plan at the Land and Property Information (LPI).

Before you can lodge a strata plan at the Land and Property Information, the Council needs to give a development approval to the conversion of the property from company title to strata title. It is important to have an understanding of the development process. Importantly, you will need to satisfy the following minimum criteria:

1. Does the building comply with the relevant Building Code of Australia? Note that most buildings do not but there may be certain exemptions available.
2. Is the building compliant with fire regulations?
3. If the building has any tenants, are the tenant arrangements regulated low income housing? Low income housing is regulated by State Environmental Planning laws, which requires landlords not to convert properties from low income housing. This policy includes the conversion from company title to strata title. It is important that you understand what rentals are being paid at the time the DA is submitted.
4. Sydney Water requires each lot in a strata plan to be separately metered. This may require the installation of either separate metering for each lot, or auto metering for each lot. Someone needs to manage this project as well as; a fire consultant;A hydraulic consultant in relation to the water metering;A surveyor to prepare the survey; and If necessary, a town player may be required in relation to the development application.

When the DA is obtained, the members will need to vote to approve the lodgement of the strata plan. The strata plan only needs to be signed by the company, as it is the company that still owns the property at this point.

If the company has any mortgages or charges over its shares, or has provided any mortgages over the property, the security holders will need to be informed and approve of the proposed conversion from company title to strata title. Bear in mind the company will need to supply the certificate of title for the land to obtain the strata titles. Without the certificate of title the strata plan cannot be lodged at the Land and Property Information (LPI).

As the property is currently owned by the company, the company needs to transfer the property to a strata plan. A transfer will need to be prepared. The transfer is from the company to the Owners Strata Plan.

The strata plan should be lodged with the Land and Property Information for a pre-inspection. This will ensure so requisitions are raised.

Upon registration of the strata plan, the titles to all the lots will be issued by the LPI. This means that the owner of each lot will still be the company in the first instance. There will then need to be a separate transfer from the company to each individual lot owner.

If an owner has a mortgage over their shares, the mortgage will need to be noted on each strata title.

1. All owners should inform the mortgagee that the company is converting from company title to strata and should arrange to have new mortgage documents prepared and signed. Those mortgage documents would then be lodged with the transfer from the company to the owner of the shares and the mortgage would be noted.
2. Stamp duty on the transfers from the company to the owner needs to be considered. If the individual owner can show that they have a contract to purchase these shares that has been stamped, there should then be no stamp duty payable. However some owners may have owned their shares for many years and the contract of even the stamp duty evidence may not be available. If they are unable to produce their contract, a separate application has to be made to the Office of State Revenue confirming that the owner has exclusive use and rights to occupy the unit and that there is no charge in the beneficial ownership of the shares compared to beneficial ownership of the strata title lodged at the start. Statutory declarations are usually required in this regard.
3. The timing for the transfer for the lots into the individual owners’ names will depend upon the provision of the stamp duty declarations and the marking of the transfers from the company to the owner.

It is in all owners’ best interests to have the one firm of solicitors advising all of the owners in relation to the transfer from the company to ensure that the transfers are effected correctly, i.e. that their name is put on the correct title for the unit and any mortgages are recorded correctly for the unit.

The Land Title Office (LPI) charges for registering a strata plan $298.30 per unit. While the cost of preparing the strata plan is subject to a surveyor quoting on the work.

Once the strata plan has been registered and the company has transferred all the lots into individual owners’ name, the company has no need to exist.

Most company title buildings will not have any capital gains tax issues as the assets were acquired prior to the introduction of capital gains tax.

An accountant needs to be engaged with the aid of your company manager to take steps to wind up the company or to dissolve the company. This would require the following:

• A resolution of all the shareholders;
• A cancellation of all the relevant shares;
• The allotment of one share to one Board member; and
• The Board member taking steps to wind the company up.

The company may either be would up or dissolved, but more likely than not it would be dissolved.

Activity relating to the company’s resolution usually requires a solicitor experienced in company title matters;

A project manager should be engaged with the Board to do all the things associated with obtaining the development approval for the strata plan;

Managing the relationship with the Office of State Revenue in respect of stamp duty usually requires the company to engage its solicitors to manage the stamp duty obligations;

Managing the transfer of the land from the Owners Corporation to the individual owners is usually done by the same solicitor as it will be a cost saving;

Dissolving the company can be done in conjunction with the company’s accountant and/or the company manager.

Usually the timing in these matters will take approximately twelve months. The Board of the company should obtain an appraisal from a reputable real estate agent of valuer to confirm that the conversion will increase value to individual shareholders. A cost benefit analysis needs to be prepared as to the other costs associated with the conversion as to how the conversion will increase the value of the shareholders’ units. Solicitors will need to be engaged to advise the Board and the company in relation to:

• The meetings of the members;
• Submitting of forms to the Office of State Revenue and the payment of stamp duty;
• Submitting of the documentation to the Land and Property Information;
• Liaising with each individual shareholder about the status of the stamp duty on their contract to purchase the property;
• Liaising with shareholders who have mortgages over their shares to ensure the mortgage in correctly on the correct title of the lot.

I feel I need to point out (having just realised it) that a big chunk of Sujenna’s initial reply is identical to material in a fact sheet offered by JFMLawyers.