BUSINESS VALUATION

Three basic possibilities existed. These were Tenants in Common, Lease Schemes and Company Title. A brief summary of these is as follows:
Tenants in Common provides for each of the co-holder tenants nominated on the Certificate of Title as having a distinct stated share in the property but being otherwise indistinguishable from other parties nominated in the first schedule of the Certificate of Title. The ‘flat’ is occupied/owned on an agreed co-ownership basis with the exclusive use and occupancy of the flat nominated under a management deed.
Lease Schemes allow for flat owners generally to occupy the premises under an extended—say 99 year—lease which contains an appropriate scheme of management.
Company Title provides for a company to be incorporated, usually specifically to acquire and hold the whole of a nominated freehold property which then allocates the right to exclusive use and occupation of a ‘flat’ to the owner/purchaser of a specified shareholding clearly identified in the Articles as referring to a nominated or numbered flat. As can be seen, the shareholder of a Company Title flat or unit owns a parcel of shares in a company which in turn owns the whole of the property. Accordingly when valuers are asked to value flats/units held under Company Title, they are valuing shares in a company which give an exclusive right to occupy a flat in a property. These shares are directly affected by internal and external factors inclusive of financial strength of the company, outstanding creditors, contingent liabilities, corporate structure and the like. Practically, valuation procedures are somewhat similar to Strata Title valuations where the subject property needs to be physically inspected and identified in accordance with the Certificate of Title, which will nominate the Company owner in the first schedule. The subject flat/unit will need to be specifically identified as corresponding with the appropriate share group for occupation of that flat within the subject building and inspected. It should be measured given there is no Strata Plan, as well as the normal inspection procedures carried out, noting such items as views, access, standard of fitting and finish, floor plan, building obsolescence, and so on. Experience indicates that in market terms comparable company title home units realise about 80% of strata title prices. However, in more buoyant or boom markets the differentiation in this discount narrows significantly. These market discounts traditionally exist because of a) the requirement of the Board’s consent to transfer or lease b) the inability of lenders to rely on statutory powers of sale of mortgagees c) other complications associated with it not being strata title. A recent experience revealed correspondence for a unit in a company title building where the intending purchasers were rejected on the basis that they had a cat which they wished to keep after acquiring the ground floor unit. The Directors rejected their application for transfer of shareholding on the basis that the cat was not wanted in the building despite previous correspondence and company minutes indicating that an earlier shareholder/occupant of the subject flat had gained permission for occupancy with their cat about 18 months earlier. Another illustration is the case where inspection of records in the company indicated a “contingent liability” brought about by a caretaker who maintained he was owed money for unpaid wages and benefits under the correct designated caretaker award. For these reasons documents maintained by the company, public officer or manager will need to be inspected and these include: 1. Memorandum and Articles of Association which need to be read and analysed to consider such matters as: a) Grouping of shares and whether the particular group of shares gives a right of occupation for the inspected unit b) Obligations to pay proportion of rates and taxes, insurance premiums, repairs and maintenance and/or management fees c) Conditions of transfer and transmission of shares d) Right to lease or sub-lease e) Any amendment varying the above matters. 2. Financial Statements which include balance sheets, profit and loss statements, current insurance details, company debtors and creditors and any contingent liabilities and level of contributions sought from shareholders to ensure these do not suggest any matters of concern. 3. The Share Register to establish the Owner of the shares associated with the unit valued. 4. Company Minutes and Correspondence which may illustrate current and past repair and recurring maintenance issues. Limitations on share transfers may also be evident from company correspondence. While the above represents an ideal, it is fundamentally not a valuer’s responsibility to provide advice on most of these matters and it would be more appropriate to rely upon other professionals and identify that reliance to avoid assumption of a wider exposure to liability. It is sometimes requested valuers provide a statement when valuing company title property indicating they have perused the Company’s Memorandum and Articles of Association and that there did not appear to be any items or clauses considered detrimental to a purchaser/lender etc, together with nomination that the actual ownership is vested in company title where the proprietor is the registered holder of ____(X)_____ number of shares being identified numbers ____(Y)_____ to ______(Z)_____ in the company known as _____(ABC Pty Limited)_______________ which is the owner of property at ____(Specified address and CT reference) . As set out above, a prudent valuer may well be advised to indicate to the client that he is not a qualified lawyer or financial/corporate adviser and is not permitted at law to comment on matters more appropriately addressed by qualified legal/financial professionals and that the valuation therein assessed is subject to professional confirmation of these matters when set out in the valuation report. Should this confirmation not be available the valuer should nominate the right to review the valuation. Again it must be remembered that company title is not considered real property at law but shares in a company which constitutes personal property and thus not subject to the Real Property Act.