Company share apartments are a unique form of ownership arrangement where the owner doesn’t technically own an estate in land, but owns shares in a company that directly owns the land and building.
Once shares in the company have been purchased, the owner is entitled to occupy the apartment under an agreement called either an “Occupation Right Agreement” or an “Occupation Licence”.
The company that owns the building will usually share a name with the apartment building. It won’t trade anything, be listed or float on the stock exchange. The directors of the company will be made up of some of the “owners” of apartments in the building. In this context, “owners” refer to those occupying the apartments pursuant to an occupation agreement. All owners are shareholders.
Why do they exist?
Company share apartments are popular for owners who wish to occupy the apartment and have a say in how the building is run.
Potential purchasers will usually have to be approved by the company in order to purchase shares. This gives residents more of a say in who they live with, contributing to more of a community feel than most apartment buildings.
Company share apartments are usually cheaper to purchase and their price may not be as influenced by fluctuations in the property market as more traditional types of property ownership.
What else do I need to know?
If you are considering purchasing a company share apartment it will be important to consider a number of things that won’t often apply to other types of property purchases:
- Consent to sell/purchase shares in the company – the vendor will need the consent of the directors of the company to sell the shares to you. There will be a list of information/documentation that the vendor needs to provide to the directors and there will also be some information/documentation that you will need to provide, for example, references and evidence that the payment of the annual levy can be met.
- Constitution of the company – read the constitution of the company carefully as it will include various restrictions, including those on renting out the apartment (especially on a short-term basis à la Airbnb) and keeping pets;
- Mortgage financing – it can be difficult to secure mortgage financing for purchasing a company share apartment. This is because the lender won’t be able to register a mortgage against an estate in land and the shares in the company are not seen as good security. We know of two banks which will currently lend on a company share apartment; however they require a higher deposit than normal and a valuation to be completed. It’s also important to check the company’s constitution for their requirements for mortgaging the shares (and the occupation licence if it’s being registered at Land Information New Zealand);
- KiwiSaver withdrawal and HomeStart grant – speak to your KiwiSaver provider ASAP if you’re planning on using any of it for your first home. All providers we have come across have declined a withdrawal for a company share apartment stating that the purchase is shares in a company rather than an estate in land. Additionally, we have not seen any company share apartments eligible for the HomeStart grant. If you are reliant on these contributions to your finance it may be that you need to explore other lending options, such as a loan from a family member;
- Operating expenses – you will be liable to pay an annual levy to the company to cover operating expenses for the building. This is not at all unusual for an apartment and is similar to the levy that is paid by unit title holders to a Body Corporate. This levy covers items such as insurance and maintenance of common areas.
- Disclosure – Again, as you are purchasing shares in a company and not a typical land title, the rules of disclosure do not apply to a company share apartment. This means you’ll have to do your homework to find out any information that agents must usually disclose to you, such as leaky building status.
Do your due diligence
If your new dream home is a company share apartment there are a few more things that you need to consider – but like any big decision in your life, you just need to know all the facts first.
Having an experienced and helpful legal property specialist to help you along the way will put you in the best possible position to make the right choice for you.
If you’re looking to purchase home or property of any kind, give us a call today. We can help your transaction run as simply and smoothly as possible. You can find us on 04 970 3600 or at firstname.lastname@example.org