Council where Company Title was compulsory

You may find this hard to believe but there was a local council in Sydney which, until a couple of years ago, would not  give planning approval for two-unit strata schemes.

It’s true. Until 2018, in the Eastern Suburbs city of Randwick, if you wanted to convert a house to a duplex or build a villa, it had to be Company Title.

The reasons for this are buried in their now defunct laws restricting sub-division of land, but they were pulled into line by then planning minister Anthony Roberts, and the local planning law was changed.

Sadly, however, this only affected future developments and there is a still a Facebook page with 615 members who want the council to let them easily convert to strata.

What’s the problem with converting?  Where do we (or they) start? They had a point: two-unit strata disputes are a special kind of living hell.

Think the irresistible force meets the immovable object – and they’re disagreeing over decisions that the law demands they make.

All of which brings us to a reader who recently asked if her company title scheme should be converted to strata to allow it to be more easily managed and to potentially increase the value of the apartments.

Her block is a small six-unit scheme that owners self-administer, a drain on their time and an occasional source of friction between them. 

She felt that converting to strata would allow them to employ a strata manager to look after all their admin issues and possibly even mediate and adjudicate on internal disputes.

For those unfamiliar with Company Title, it’s a form of ownership that pre-dates strata and involves residents owning shares in a company which owns the building. The shares they own permit them to live in specific flats.

As a result, company title comes under company law rather than strata law, meaning owners can potentially exclude tenants, pets, even children or people they don’t like the look of. The company is effectively an individual who can make their own rules

That may appeal to those who love the idea of rules and regulations but, because of the ownership structure, banks offer a lower percentage of the property value in loans and that affects the purchase price of the property.

Getting back to our original poster, she’d been told it would cost about $10,000 per unit to convert, but according to a variety of legal sources, it is a long, complicated and expensive process which will probably cost a lot more than $10k per unit.

The same process applies across most states (albeit with subtle differences),  and has two stages – assessment of the value, condition and legal and tax status of the existing block and individual apartments, followed by approval of your proposed strata scheme by the relevant authorities.

So, for a start, legal papers must be drafted, meetings held and resolutions voted upon. In NSW, for instance, you’ll need a minimum 75 per cent vote in favour.

Realistically, observers say, you’ll want unanimous approval otherwise dissenters will be able to block and complicate the process, and the costs will significantly increase.

Then your local council needs to approve the conversion which may require improvements to the building to bring it up to code. 

The building and individual apartments will need to be surveyed which leads you into a whole new maze of regulations, restrictions and minimum criteria.

You will have to employ a range of professional consultants to ensure your proposed plan complies with current planning and strata laws, Building Code of Australia, fire regulations, water metering, and even low-income housing provisions.

There are also mortgage, tax and stamp duty and ASIC company registration implications.

Finally, you would have to lodge a strata plan with the relevant government departments: Land and Property Information in NSW, Land Victoria and Queensland Land.

In short, you will probably need to employ an experienced project manager –  probably a strata manager or strata lawyer –  to handle the whole process.

Conversion might make sense for a larger block where one-off costs can be more evenly spread,  but as a result, the financial benefits from increased property values reduces as the number of units decreases.

In any case, to answer the original question, you can already employ a strata manager or building manager to run your block.  Many strata managers also look after company titles, so going to all the cost and hassle of conversion might be a lot of pain for very little gain.

There’s a lot about Company Law conversions here and there on the internet but you’ll find a comprehensive guide in JFMLaw’s website.

An edited version of this column first appeared in the Australian Financial Review.