Housing Co-ops

As housing costs continue to climb and the housing market tightens, housing cooperatives have become an increasingly attractive housing option. With the establishment of a secondary market for cooperative loans, conventional financing is more readily available. Personal tax deductions, lower default and turnover rates, lower tax assessments, reduced maintenance costs and resident participation and control are further incentives for choosing the cooperative route to homeownership.

Cooperative housing is not a new concept. This country's first housing cooperative was organized in New York City in the late 1800s. Today, more than 1 million units of cooperative housing are scattered throughout the United States, with large numbers located in major urban areas like New York City, Chicago and Washington.

A Housing Cooperative

Housing cooperatives are a form of multifamily homeownership. In a housing cooperative, there are two owners, the cooperative corporation and the corporation's owners, who are typically known as tenant-stockholders.

The cooperative corporation owns or leases the housing project, including all land, dwelling units and common areas. The cooperative corporation, in turn, is jointly owned by its tenant-stockholders, who by virtue of their stock ownership, are entitled to occupy a specific dwelling unit.

Tenant-stockholders purchase stock — sometimes called shares or membership certificates — in the cooperative corporation. Upon purchasing stock in the cooperative, the tenant-stockholder signs a perpetual lease, called a proprietary lease or occupancy agreement that gives the tenant-stockholder a legal and exclusive right to occupy a dwelling unit as long as all obligations to the cooperative are met.

The cooperative corporation is the legal owner of the property. As such, the corporation is responsible for meeting its financial obligations, including mortgage payments, real property taxes and management and maintenance costs. The cooperative passes on these costs to the tenant-stockholders, who pay a single monthly fee or carrying charge to the cooperative.

By altering the basic legal and finance structures, many different types of housing cooperatives can be developed.

• A market rate cooperative sells stock at full market value in the original sale and permits a market rate of return on resales by its tenant-stockholders.
• A limited equity cooperative limits the return allowed when shares are sold. The amount of return is determined by a formula established in the corporation's bylaws.
• A leasing cooperative leases the property from an investor on a long-term basis, sometimes with an option to buy. The residents operate the property as a cooperative.
• A mutual housing association is a non-profit corporation set up to develop, own and operate housing. Generally, the corporation is owned and controlled by the residents of the housing produced.
• An elderly housing cooperative is a cooperative which has design and service features appropriate to a senior residency.
• A subsidized cooperative is a cooperative which has received some form of subsidy from a government or non-profit entity to lower the cost of the housing to the tenant-stockholders.

Glossary of Important Terms

Cooperative Housing Corporation Bylaws spell out the individual member's relationship and obligations to the cooperative. Also, the bylaws specify the duties of the cooperative's board of directors and the transfer value and other procedures relative to the sale of stock.

Occupancy Agreement — sometimes called a proprietary lease — is the contract between each member and the corporation, which gives the member the right to occupy a unit, participate in the governance of the cooperative and receive tax benefits and equity increases in return for financial and participatory support of the cooperative.

Subscription Agreement documents the purchase of shares in the housing cooperative. It includes a record of the number of shares purchased, the value of the shares and the related monthly charges.

Stock, Membership Certificate or Shares represent the tenant-stockholder's ownership interest in the cooperative housing corporation.

Code Section 216 is the section of the Internal Revenue Code which allows for the pass-through of mortgage interest and real property tax deductions from the cooperative housing corporation to the tenant-stockholders.

• Cooperative Housing Resources