A young couple were looking to buy a company share apartment.  They went to their bank for finance approval and the bank asked about whether the occupation licence was registered or not.  The bank said this would affect whether they could get finance.  They didn’t know what an occupation licence was, so took advice from their lawyer.

Company share apartments are complexes in which the underlying land on which a building is built, as well as the building itself, are owned by a company.  Those who buy apartments in the building receive shares in the company as well as an ‘occupation licence’ or ‘occupation right agreement’, as opposed to a separate title for their apartment.   They are not an overly common form of ownership structure, with most apartment buildings now being unit titled.

Occupation licences are an agreement between the owner of the apartment and the company, allowing the owner (shareholder) to use and enjoy their apartment.  Some company share buildings have registered occupation licences, and some have unregistered occupation licences (and some might have an option to register).  Registered occupation licences are registered on the title to the underlying land.

Reasons that some companies might have registered occupation licences, rather than unregistered ones may include:

  1. Registered occupation licences generally give better security to banks, if owners are obtaining a mortgage to buy their apartment, as the bank will often look to take a mortgage against the registered licence to occupy (similar to a leasehold title).  Banks will generally also want a general security agreement over the shares as well, regardless of whether a licence is registered or not.  Purchasers also need to check the constitution or occupation agreement allows a mortgage to be given over the shares and/or occupation right.
  2. Registered licences are often seen as safer and more robust to purchasers, as they are able to be given a physical title showing the registered licence.

It pays to take legal advice prior to making an offer on a company share apartment, to make sure you’re not caught out.