There has been a preference for investors to acquire strata title commercial properties instead of freehold properties. However, there seems to be some confusion about the differences between strata title and freehold investment properties.
Investing in a freehold commercial property enables the landowner to have control of the land including the building. This includes the ability to renovate, or the addition of advertising without the approval of the body corporate.
On the other hand, with strata titles, the landowner is only responsible for the internal section of their individual building. There is a body corporate established for the purposes of regulating the use of the external structures and land through ‘by-laws’, including its associated costs. As such, any potential change that may impact the building and the common areas will require approval of the body corporate. This impacts potential renovations or advertising for businesses.
Importantly, properties under strata title are at times beyond its owners control when compared to freehold properties. Renovations and advertisements are usually required to be approved by the body corporate. Owners will have to note approval mechanisms for future purposes.
COST OF ENTRY
Freehold properties are usually more expensive when compared to individual strata titled properties.
For freehold properties, the landowner is liable for maintenance costs.
Under strata title, a strata levy is imposed on owners to pay for the maintenance of the common areas. Further, the owners will have to contribute to a ‘sinking fund’ for future repairs and maintenance.
The main advantage of a strata title commercial property is that outgoings are usually less than freehold properties. In a strata title property, any outgoings are relevant to the individual lot instead of the building itself.
An investor who wants total control of a property with enough financial resources should choose a freehold property. However, an investor who has limited financial capacity and does not mind being a part of the owners club (body corporate) should select a strata titled property.
Tony Kim is an Associate Solicitor in our commercial and property law team. Tony has a keen interest in the area of property, especially property developments, and has been involved in a number of projects. Co-author, Elizabeth-Erin Valassakis, is a Law Student gaining significant experience in various areas of law. Should you require assistance in commercial and property law, please contact Stephens & Tozer today.
9 December 2019