The hidden detail that can derail your home or investment purchase

One thing that continues to catch buyers off guard in the apartment market, isn’t the floorplan, the natural light, or even the strata fees.

It is often the title.

And more specifically, the uncomfortable moment when someone realises that not all “apartments” are created equal from a legal ownership perspective.

In Australia, most buyers are familiar with strata title. It is the dominant model, the one lenders are comfortable with, and the one that underpins the vast majority of modern apartment stock.

But sitting beneath the surface of our housing stock are two older and more complex structures that still appear from time to time: stratum title and company share.

They often look similar on inspection. Same era buildings, similar layouts, comparable locations. Yet the way they behave in the market can be very different indeed.

A more sinister outcome for a buyer with a deposit sub-20 per cent relates to lending.

And this is where due diligence matters, because title is not just a legal detail. It impacts liquidity and can sometimes mark the difference between a buyer’s ability to settle the purchase and a buyer’s loss of deposit and legal liability for losses sustained by the vendor.

Strata: the benchmark that most people understand

Strata title is what most people now think of when they picture apartment ownership.

Buyers own their individual lot; their apartment, and they share ownership of the common property with other owners in the building. That includes corridors, lifts, driveways, lawns, carparks on communal land, and other shared facilities.

A strata corporation (sometimes known by varying labels in different states and territories) manages the building. There is a legislative framework that governs how decisions are made, how disputes are handled and how levies are raised.

It is well-understood and, more importantly, widely accepted by lenders and valuers.

That standardisation is what gives strata its strength in the market. It is easy to finance, easy to understand and easy to resell.

Company share: ownership through a corporate structure

Company share title is a very different construct, and it is usually found in older apartment buildings.  While not restricted to the three eastern seaboard capitals, they are commonly found in the inner-ring, established parts of Sydney, Melbourne and Brisbane. Often, the style and era is Art Deco, but I’ve seen plenty of mid-century company share units too.

Instead of owning a defined parcel of land or airspace, a buyer purchases shares in a company that owns the entire building. Those shares then entitle the buyer to occupy a specific unit by way of a deed with a set of company rules.

On paper, it can sound like a minor variation. In practice, a company share unit behaves quite differently.

The key difference is governance.

In strata, legislation sets the rules. In company share, the company constitution sets the rules. And that constitution can vary widely from building to building.

It is not uncommon to see restrictions on who can buy, whether a property can be leased, whether pets are permitted, how long leases can run, and what renovations are permitted.

From a lending perspective, this is where resistance becomes apparent. Some lenders will not touch company share at all. Others will apply lower loan to value ratios (LVRs) or require more stringent conditions. The important thing to note is that lenders will not lend above 80 per cent LVR for a company share unit, with many LVR’s sitting at just 60 per cent.

It is not a judgement on the quality of the apartment. It is a reflection of the security structure.

Banks favour mainstream properties and they generally require an asset that they can enforce control over in the case of default. Company share is not simple and does not offer the typical security that banks require.

The implication for a buyer is that they will require at least a 20 per cent deposit, and often significantly more.

If a buyer purchases such an asset and is unaware of this requirement, they risk defaulting on their purchase. The result of such a blunder is unthinkable. A vendor can retain their deposit payment and pursue them for any losses.

Stratum title: the hybrid that causes confusion

Stratum title sits somewhere between the two, and it is often misunderstood, even by experienced buyers.

In a stratum structure, the individual unit is owned outright, but the common property is owned and managed by a company in which owners hold shares.

So, it’s more of a hybrid model between both strata and company share. Individual ownership of the lot, combined with a corporate structure overseeing the shared areas is how I best describe a stratum ownership structure.

The result of this is a hybrid governance environment that can be less predictable than standard strata, but less restrictive than company share.

While this middle ground can create confusion, lenders broadly treat stratum similarly to how they treat company share. The same types of LVRs apply, and not all lenders have an appetite for such a title type.

On inspection, a stratum property will often present exactly like a strata apartment. The differences only become apparent when the legal structure is reviewed in detail.

This is where transactions can unravel if due diligence is insufficient or omitted.

I have seen buyers fall in love with a property, only to discover late in the process that the title introduces lending constraints they were not expecting.

Why these ownership structures still exist

Company share and stratum titles are not anomalies. They are legacy systems.

Many were established in early and mid-twentieth century apartment construction, before modern strata legislation existed. At the time, these structures were practical solutions for shared ownership.

When strata legislation was introduced, it created a far more standardised framework. Converting older buildings, however, is not always straightforward.

Fire compliance upgrades, legal restructuring and unanimous owner agreement can make conversion complex, expensive and, in some cases, impossible.

As a result, these older title types still exist, particularly in boutique inner city buildings with character and history.

The apartment market reality

One of the most misunderstood aspects of company share and stratum is how they influence resale.

Buyers often focus on purchase price and assume a discount represents opportunity. Sometimes it does. But often, that discount is compensating for a deeper set of challenges.

These properties tend to have:

• a smaller buyer pool
• tighter lending parameters
• more complex legal reviews
• (in some cases) behavioural restrictions.

All of which affect demand at the point of sale.

Even if the apartment itself is excellent, the exit pathway is not as broad as strata stock.

Interestingly, the cost differential between two physically similar units with strata versus stratum ownership can be as great as 30 per cent. Resale for stratum is generally slower, with more price discounting and a higher chance of failed sales when finance clauses are incorporated in the offer.

Strata is the most transparent, most liquid and most widely accepted structure for apartments.

Stratum is a hybrid and it requires equally careful legal review and lender awareness.

Company share is the most complex. It can offer value in the right circumstances for lower LVR buyers, but it comes with constraints that must be fully understood prior to signing a contract.

When it comes to apartments, the most important elements are often invisible at inspection. Title type is one of those elements.

In the case of stratum and company share, it is not just a legal classification. It is a determinant of flexibility, a buyer’s ability to finance and future demand.