In a company share flat a company owns the land and buildings. You buy shares in the company. Your ownership of those shares entitles you to take out an Occupation Licence (often called a Licence to Occupy) with the company giving you the right to occupy your flat (and garage/carport if any) for so long as you are the owner of the shares.
In return you must pay a levy being your share of the running costs of the company. Those running costs would normally cover insurance, rates, and common maintenance. There may also be a levy for expenses anticipated in the future such as structural repairs, painting, or such like.
The Occupation Licence sets out:
- The right of the shareholder and family to occupy the flat and use common areas (such as lifts, stairwells, grounds, etc).
- The obligations of the shareholder and the company, eg the shareholder usually pays a levy to the company, which in return maintains the building, pays the rates, insurance, etc.
- Any restrictions on residents making alterations to their flats, and on how flats may be used (eg there may be a restriction on sub-tenanting or keeping pets).
- The shareholder’s obligation to maintain, normally the interior of the flat only.
Flat owning companies usually require the directors of the company to approve the transfer of the shares to the buyer. Often a real estate agent will arrange that or alternatively that will need to be dealt with by your lawyer.
Flat owning companies normally appoint a Secretary to carry out the day to day administration of the company. Often that is a Chartered Accountant, who is paid for carrying out these services, or alternatively it may be one of the occupants. You should make your own inquiries of the company secretary to satisfy yourself as to the financial position of the company and as to your continuing financial commitment. The company will have an annual set of accounts. These will show you the costs of running the Company and the levies payable by the occupants. Traditionally the costs include local body rates, building insurance, common property maintenance, professional administration charges, and possibly a ‘sinking fund’ to provide for substantial items such as repainting or resealing of driveways.
You should find out:
- How much is the levy you will have to pay and how often?
- Are the levies sufficient to meet day-to-day obligations?
- Are the present occupants generally paying their levies on time?
- If any significant work appears necessary or has been proposed, is there a fund to cover it? If so, can the seller withdraw their portion; and can the company require you to pay that amount instead?
- Are any special levies proposed that you will have to pay? The company may not have formally resolved to charge such a levy, but you should ask whether occupants are considering one. Is there repair work due soon?
- Is the company involved in any dispute or aware of any legal action being taken against it?
There are costs associated with buying and selling company share flats that do not apply to other forms of ownership. The Licence to Occupy / Sub-Lease is normally prepared by the lawyer for the Company at the cost of the buyer. Sometimes the seller has to sign a deed to surrender their occupation rights. There may be a fee payable in obtaining the director’s approval. These are over and above your own lawyers costs in relation to the purchase.
Some lenders will not lend on the security of a company share flat because they cannot get a mortgage over the land and building. There are exceptions, you should discuss that with your lawyer.