Company share apartments look like normal apartments. But there’s something decidedly different about the ownership structure. This difference makes them very attractive (and equally unattractive) to certain buyers.
With company share apartments, a company owns both the land and the building.
The company often shares the name of the apartment. When someone “buys” one of the apartments in the building, they’re not buying a specific part of the building or land. Instead, they’re buying shares in the company that owns the land and the building. Once shares in the company have been purchased, the purchaser is entitled to occupy the specific apartment under an agreement called either an “Occupation Right Agreement” or an “Occupation Licence”. All purchasers become shareholders of the company, and generally only some of the purchasers become directors of the company.
So why would this unusual ownership arrangement be attractive to some buyers? One reason is because it allows people to have a greater say in who they live with. In most circumstances, potential apartment purchasers will usually have to be approved by the company before they can buy shares. As a shareholder in the company, rather than an owner in a unit title apartment building, the person who buys the apartment has a say in how things are done. Much of this revolves around the sort of people who move into the building.
Another appeal of company share apartments is that they’re usually cheaper. That would make them popular in anyone’s book.
However, company share apartments do come with their downsides and complexities. Here’s what you need to be aware of:
- Getting finance can be tricky – Banks typically don’t like company share apartments. There are only a couple of banks that lend on them, and they require purchasers to have a higher level of equity. Purchasers also need to check the company’s constitution for their requirements for mortgaging the shares (plus the occupation licence if it’s being registered on the title).
- KiwiSaver withdrawal and HomeStart grant not available – Providers generally (well at least the ones we have asked) won’t allow a withdrawal for a company share apartment; again, it comes back to the fact you’re buying shares in a company rather than an estate in land. It’s doubtful that any company share apartments are eligible for the HomeStart grant. Any purchasers thinking of using their Kiwisaver would need to contact their provider as soon as possible to see if their provider allows it.
- Director consent needed to sell or buy shares – The person selling the apartment will need the agreement of company directors before they can sell the shares. This will slow down the sale/purchase process.
- The company constitution will impose restrictions – It’s important to see what restrictions the constitution imposes. For example, many don’t allow for pets to be kept, or for apartments to be rented out (bye bye to Airbnb income stream).
- There will be operating expenses – Purchasers will have to pay an annual levy to the company to cover the building’s operating expenses. It’s a bit like paying a fee to a Body Corporate. This levy covers things like insurance and maintenance in common areas.
Company share apartments can have their advantages. But there are strings attached. If you have any questions regarding company share apartments please get in touch – [email protected] or (04) 390 2123.