What is a Company Share Apartment and what do I need to know?

Company share apartments are an ownership arrangement where the land and buildings are owned by a company and each apartment owner receives shares in the company instead of a title. The owners also receive an occupation lease or licence granting them the right to occupy their apartment.  

While this ownership arrangement was more common prior to the introduction of the Unit Titles Act 1972, there are still many in place today.

The company directors have responsibility for managing the apartments and are voted in by the shareholders. The company constitution and shareholders agreement will be relevant to this procedure.

Occupation licences/leases

Occupation licences/leases are an agreement between each owner/shareholder and the Company, granting them the right to the use and enjoyment of their apartment. These interests are capable of being registered but not all Company Share apartments do so.

A registered occupation licence will show on the title of the underlying land, and create an individual title for the owner, similar to a leasehold title. The benefits of having a registered occupation licence include:

• Attractive to purchasers – registered licences are often seen as safer and more robust to purchasers, as they receive a title showing the registered licence.
• Providing better security for lenders – where owners require lending to buy their apartment the bank will often look to take a mortgage against the registered licence as security for the lending, rather than just having a security interest over the shares.

General tips when buying or selling company share apartments

• You should ensure that you review the company constitution, shareholders agreement, and occupation licence and consider any limitations within these documents.  Often there are restrictions on renting out the property or having pets.  If looking to purchase a company share apartment, we would recommend including a condition in the Agreement for Sale and Purchase which allows you to review and approve this documentation.  
• The directors of the company must consent to any purchaser buying into the complex and may interview any potential purchaser. The vendor and purchaser will need to ensure that there is a condition in the Agreement allowing for this approval process to take place. 
• Banks are often reluctant to lend against company share apartments as the security is over the shares rather than land.  Some company share constitutions will not allow owners to mortgage their shares. Often banks will require a higher deposit from borrowers, especially if there is no registered occupation licence against which to register a mortgage. It is highly recommended that purchasers include a finance condition in their Agreement for Sale and Purchase, ensuring they can withdraw if suitable finance is not able to be obtained.
• Similarly, many KiwiSaver providers will not approve the withdrawal of purchaser’s KiwiSaver funds for the purchase of a company share apartment.  We recommend discussing this with your KiwiSaver provider before submitting your offer, or inserting a finance condition to enable you to make further enquiries once your offer is accepted. 
• There are considerable ongoing costs, similar to those in a unit title development, where owners in a company share arrangement will pay operating expenses to the company, which cover general maintenance, insurance and rates.
• Since the Company is the entity responsible for insuring the building, it is important to ensure adequate insurance is in place in the event of any future claims.
• There is no legislative framework regarding disclosures for company share apartments as the Unit Titles Act doesn’t apply to them.  It is important to ensure that any potential purchasers complete their own due diligence, and owners should retain copies of minutes, financial statements, and any other relevant information available to provide to purchasers. 

It is recommended that you seek legal advice whenever buying or selling a company share apartment.  

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track. 

Laurie Pallett and Raiyan Azmi