A lot of Victorian businesses operate out of buildings that sit inside a commercial owners corporation, yet almost all the public conversation about strata is about apartments and townhouses. Commercial owners corporations run on the same legislation as residential ones, the Owners Corporations Act 2006, but the day to day reality is quite different. Here is what actually changes when you own, lease or sit on the Committee of a commercial building.
Key Takeaways:
- Commercial owners corporations tend to be far less emotive than residential ones, but they carry their own cost and compliance complexity.
- Operating and insurance costs often run higher, driven by heavier lift use, cleaning, signage and industrial risk.
- Tenants frequently pay the outgoings, including owners corporation fees, but generally get no say in how the building is run.
- GST registration can make sense for commercial buildings where most occupants are registered businesses, though that is a question for a qualified accountant.
How is a commercial owners corporation different from a residential one?
The same legislation applies, but the day to day picture diverges across a handful of areas. Here it is at a glance, before we work through each one.
| At a glance | Residential owners corporation | Commercial owners corporation |
|---|---|---|
| Tone of disputes | Emotive and personal | Transactional and business-focused |
| Operating costs | Standard scale | Often higher, with heavier lift use, cleaning and signage |
| Insurance | Priced on building value and risk | Can climb where industrial or manufacturing use is present |
| Who pays the outgoings | Lot owners, through their levies | Often the tenant, under the lease |
| Say in how it runs | Owners hold the vote | Tenants may pay yet generally cannot vote |
| GST registration | Rarely worth it below the threshold | Can pay off where occupants are registered businesses |
Residential owners corporations are people’s homes, so disputes get personal quickly. There was an owners corporation in South Yarra that reportedly spent around $120k on legal fees over a single barking dog.
Commercial buildings rarely play out that way. Owners and Committee Members are usually focused on running their businesses, not the politics of the foyer. In practice that tends to make the building easier to manage:
- Decisions are weighed commercially rather than emotionally.
- Disputes are less frequent and more transactional when they do happen.
- Meetings stay closer to the actual running of the building.
It is not a guarantee of a quiet life, but the temperature is generally lower.
What extra operating costs do commercial owners corporations face?
The core budget looks familiar. You still have cleaning, insurance, repairs and maintenance, common utilities and management fees. What changes is the scale, because commercial buildings work harder:
- more frequent cleaning of high traffic foyers and shared amenities
- higher lift servicing costs from heavier daily use
- routine external and window cleaning
- higher common area electricity from lighting and signage
- concierge or security in larger buildings
- expanded facilities management requirements
None of these are unusual on their own. Stacked together, they are why a commercial budget can sit well above a comparable residential one.
Why are insurance premiums sometimes higher for commercial buildings?
Insurance premiums track building value and risk, and commercial use can push both up. Industrial or manufacturing activity is the obvious driver. Years ago we worked with a building where a tenant manufactured surfboards, and insurers treated the resins on site as a heightened fire risk, which fed straight into the premium.
It is worth knowing that the line between residential and commercial is not always where you would expect. Some insurers will treat even a residential building as commercial in nature if more than half the lots are being used for short stays, which can change both cover and cost.
If your building’s costs keep creeping up year on year and the explanations from your manager feel thin, it can be worth having an independent set of eyes go over the budget before the next AGM. That is exactly the kind of question a strata consultant is built to answer.
Who pays the outgoings in a commercial owners corporation?
This is where commercial strata diverges most sharply from residential. In a residential building the lot owners pay the levies themselves, whereas in most commercial buildings the lease passes the outgoings onto the tenant. Outgoings typically include council rates, water rates and owners corporation fees. There is an important legal distinction here that often gets blurred:
- Retail premises leases are covered by the Retail Leases Act 2003 (Vic). Section 29 sets out the meaning of the outgoings a tenant contributes to, and the Act actively limits what a landlord can recover. Capital costs and sinking fund contributions, for example, generally cannot be passed on, and recovery is only allowed where the lease spells it out (Section 39).
- Office, industrial and warehouse leases are usually not covered by that Act. Outgoings are then governed by the lease terms and general contract law, which gives the parties more freedom but fewer statutory protections for the tenant.
Where a building is owned entirely by one party, outgoings may not be passed on at all, since there is no separate tenant to recover them from.
The point that surprises tenants most: paying the owners corporation fees does not buy a seat at the table. Voting rights and AGM participation attach to lot ownership under the OC Act 2006, not to tenancy. A tenant can be funding a large share of the budget and still have no formal vote on how it is spent.
Should a commercial owners corporation register for GST?
For GST purposes an owners corporation is treated as carrying on an enterprise. Registration becomes mandatory once turnover passes the GST registration threshold, which is commonly $75,000. A higher $150,000 threshold only applies where the owners corporation qualifies as a non-profit body, and that characterisation is not automatic for every owners corporation. Below the threshold, registration is optional.
A commercial building might still choose to register voluntarily, because the maths can work differently than it does for residential:
- Lot owners who are registered businesses using their premises for their enterprise may be able to claim the GST embedded in their levies back as an input tax credit.
- The owners corporation itself can claim GST credits on its own expenses, such as cleaning, electricity and maintenance.
The trade-offs are quarterly BAS lodgement and the administrative load that comes with it. In a residential building, registering when you do not have to rarely makes sense, because lot owners generally cannot claim the GST back. In a commercial building full of registered businesses, the answer can flip. This is a decision to make with a strata-savvy accountant rather than a rule of thumb, since the numbers depend on the specific mix of owners and occupants.
Considering whether your commercial manager is the right fit?
A capable commercial owners corporation manager should free you to focus on your business, not the building. If you are not confident yours is doing that, Strata Management Consultants can give your Committee an independent read on the current arrangement and, where it makes sense, help you move to a better manager from a panel we have vetted ourselves.
