Commercial property in Australia is held under one of two principal ownership structures: freehold title (single owner of the whole building or parcel) or strata title (multiple owners each holding an individual lot within a shared scheme). The structure has substantive implications for what the buyer owns, how the building is managed, what capex risks the buyer bears, and how lenders price the asset.
This guide covers the practical differences between strata and freehold commercial property, the body corporate framework that applies to strata, the lender appetite differences, and the asset classes where each structure is most common.
Strata is cheaper to enter and more constrained to operate. Freehold is more expensive to enter and gives the owner full control. Each suits different buyer profiles and different asset classes; the answer to "which is better" is always "for what".
The Two Structures
Freehold
Single owner of the entire title (building plus land, or building only on leasehold land). The owner controls the property, makes all capex decisions, collects all rent, and bears all operating costs. Common in standalone commercial: industrial sheds, freestanding retail, single-occupancy office buildings.
Strata
Multiple owners each holding an individual lot within a shared scheme. The lots are individually titled and tradeable. Common areas (foyer, lifts, exterior walls, roof, parking) are owned collectively by the owners through a body corporate (also called owners corporation or strata corporation depending on state). Common in CBD office, suburban office, neighbourhood retail strata, mixed-use developments, and commercial industrial estates.
1 The Body Corporate Layer (Strata Only)
The body corporate manages the common property. It collects levies from each lot owner, pays for common-area maintenance, insurance, and capex, and enforces the scheme's by-laws.
Levies
Each lot pays administrative levies (operating expenses) and sinking fund levies (capital fund for major works). Levy rates are set annually by the body corporate at general meetings. Levy increases are subject to the scheme's rules but can be substantial in years requiring major repairs.
Sinking fund
A capital reserve maintained for major works (roof replacement, lift overhaul, facade refurbishment). The adequacy of the sinking fund affects both current levy rates and the future levy trajectory.
By-laws
Scheme-specific rules covering use of lots, common-area access, tenancy mix in mixed-use buildings, and operational matters. By-laws can be amended by special resolution at general meetings.
2 Capex and Maintenance
Freehold
The owner is responsible for all building capex. Major works (roof, HVAC, facade) are planned and funded by the owner. The owner's discretion is total, subject to lease obligations.
Strata
Common-area capex is funded by the sinking fund and the body corporate. Individual lot capex is the owner's. A levy raise for major works can be substantial and is shared across owners proportionally to lot entitlement. The owner has no individual control over the timing or scope.
3 Lender Appetite
Freehold
Standard commercial lending terms. LVR caps reflect the asset class and tenant covenant. No body corporate complications.
Strata
Most major banks lend on commercial strata but with some additional review of the body corporate financials. Specific risk factors that affect appetite:
- Sinking fund adequacy. A scheme with low sinking fund balances and pending major works can attract reduced LVR.
- Body corporate solvency. Outstanding levies and inter-owner disputes affect the lender's view.
- Mixed-use complications. Strata schemes mixing residential and commercial can have lender constraints.
- Scheme size. Very small schemes (under 5 lots) can be harder to finance than larger schemes.
4 Where Each Structure Dominates
Strata-dominated asset classes
- CBD office. Most A and B grade CBD office is strata, with individual floors or sub-floors as separate lots.
- Suburban office. Commonly strata in purpose-built medical and professional buildings.
- Industrial estates. Mixed: some are strata (smaller units), some are freehold (larger standalone sheds).
- Mixed-use shop-top residential. Almost always strata.
Freehold-dominated asset classes
- Large-format retail. Single-anchor LFR is typically freehold.
- Neighbourhood centres. Single-owner schemes typical.
- Industrial single-tenant sheds. Standalone freehold dominates.
- Service stations. Single freehold.
- Childcare and medical centres. Mostly freehold; some smaller medical consulting is strata.
5 Pricing and Yields
Strata commercial typically trades at wider yields than comparable freehold, reflecting the body corporate operational complexity, the constrained capex control, and the lender appetite differences. The gap varies by asset class and submarket.
For a buyer running a yield-only brief, strata can offer a yield premium that compensates for the operational considerations. For a buyer running a control-and-flexibility brief, freehold's premium is justified.
6 Buyer-Side DD Steps for Strata
- Strata report. Independent strata search covering scheme financials, sinking fund balance, recent levies, outstanding disputes, by-laws.
- Body corporate minutes. Last 12 to 24 months of meeting minutes. Major works planned, financial decisions, owner disputes.
- Capital works fund forecast. Independent assessment of upcoming major works and the sinking fund's adequacy.
- Levy history. 5 years of levy history per lot. Trajectory and one-off special levies.
- Insurance. Body corporate insurance schedule, premium history, claims history.
- Lot entitlement. The lot's share of common property costs and voting rights.
- By-law review. Restrictions affecting use, tenancy mix, common-area access.
7 When Strata Is the Better Buy
- Smaller ticket size where freehold equivalents are out of range.
- Premium CBD office location where strata is the only available format.
- Owner-occupier briefs where the buyer wants a specific floor or suite.
- Diversification across multiple smaller assets rather than one large freehold.
8 When Freehold Is the Better Buy
- Larger ticket size where the buyer wants full control.
- Asset classes where the management overhead of strata adds cost without benefit (industrial, single-tenant retail).
- Long-hold strategies where capex control matters more than entry price.
- Buyers wanting redevelopment optionality without body corporate consent.
Frequently Asked Questions
Can I buy a strata lot for an SMSF?
Yes. The single-acquirable-asset test is typically satisfied. Levy obligations and special levies need to be modelled into the SMSF's cash flow.
What's the typical body corporate levy?
Varies widely by scheme. Modern A grade CBD office strata: $50 to $100 per square metre per annum. Older B grade: $30 to $60. Industrial strata: $5 to $20. Specific scheme levies should be reviewed pre-purchase.
Can a strata lot be redeveloped independently?
Generally not without body corporate consent. Most strata schemes require special resolution (75% to 100% support depending on the change) for substantive alterations.
What happens if the body corporate is insolvent?
Body corporate insolvency is rare but possible. Owners are typically liable for unpaid levies on a proportional basis. Buyer-side DD on outstanding levies and disputes is part of every strata acquisition.