A housing cooperative is a legal entity - usually a corporation - that owns real estate; one or more residential buildings. Each shareholder in the legal entity is granted the right to occupy one housing unit, sometimes subject to an occupancy agreement, which is similar to a lease. The occupancy agreement specifies the co-op's rules.

Legal status

As a legal entity, a co-op can contract with other companies or hire individuals to provide it with services, such as a maintenance contractor or a building manager. It can also hire employees, such as a manager or a caretaker, to deal with specific things that volunteers may prefer not to do or may not be good at doing, such as electrical maintenance. However, as many housing cooperatives strive to run self-sufficiently, as much work as possible is completed by its members.

A shareholder in a co-op does not own real estate, but a share of the legal entity that does own real estate. Co-operative ownership is quite distinct from condominiums where people "own" individual units and have little say in who moves into the other units. Because of this, most jurisdictions have developed separate legislation, similar to laws that regulate companies, to regulate how co-ops are operated and the rights and obligations of shareholders.

Ownership

Each resident or resident household has membership in the co-operative association. Members have occupancy rights to a specific suite within the housing co-operative as outlined in their "occupancy agreement", or "proprietary lease" which is essentially a lease.

In some cases, the co-op follows Rochdale Principles where each shareholder has only one vote. Most cooperatives are incorporated as limited stock companies where the number of votes an owner has is tied to the number of shares owned by the person. Whichever form of voting is employed it is necessary to conduct an election among shareholders to determine who will represent them on the board of directors (if one exists), the governing body of the co-operative. The board of directors is generally responsible for the business decisions including the financial requirements and sustainability of the co-operative. Although politics vary from co-op to co-op and depend largely on the wishes of its members, it is a general rule that a majority vote of the board is necessary to make business decisions.

See also Strata title

Management

In larger co-ops, members of a co-op typically elect a board of directors from amongst the shareholders at a general meeting, usually the annual general meeting. In smaller co-ops, all members sit on the board.

The board typically elects its own officers, such as a president, vice-president and so on. Usually, the directors are volunteers, or are paid an honorarium. The board may then establish standing committees from among the shareholders, who usually also volunteer their time, to either handle the business affairs of the co-op or make recommendations to the full board on such issues as its finance, membership and maintenance of its housing units.

Finance

A housing cooperative is normally de facto non-profit, since usually most of its income comes from the rents paid by its residents, who are invariably its members. There is no point in creating a deliberate surplus—except for operational requirements such as setting aside funds for replacement of assets—since that simply means that the rents paid by members are set higher than the expenses. (Note, however, that it's quite possible for a housing co-op to own other revenue-generating assets, such as a subsidiary business which could produce surplus income to offset the cost of the housing, but in those cases the housing rents are usually reduced to compensate for the additional revenue.)

It is relatively difficult to start a housing co-op because if the idea is, for instance, to build a building or group of buildings to house the members, this usually takes a significant mortgage loan for which a financial institution will want assurances of responsibility. It may also take a year or more for the members to organize the design and construction, as well as time and foresight to establish even basic organizational policies. It is rare that these kinds of skills of organization are available in a random group of people who often have pressures on their existing housing. It may be somewhat easier to organize a group of closely related housing units. This opportunity may arise, for example, if an existing apartment building's owner is thinking about selling it.

There are housing co-ops of the rich and famous: John Lennon, for instance, lived in a housing co-operative, and most apartments in New York City that are owned rather than rented are held through a co-operative rather than via a condominium arrangement.

There are two main types of housing co-operative financing methods, market rate and limited equity. With market rate, the share price is allowed to rise on the open market and shareholders may sell at whatever price the market will bear when they want to move out. In many ways market rate is thus similar financially to owning a condominium, with the difference being that often the co-op carries a mortgage, resulting in a much higher monthly fee paid to the co-op than would be so in a condominium. The purchase price of a comparable unit in the co-op is typically much lower, however.

With limited equity, the co-op has rules regarding pricing of shares when sold. The idea behind limited equity is to maintain affordable housing. A sub-set of the limited equity model is the no-equity model, which looks very much like renting, with a very low purchase price (comparable to a rental security deposit) and a monthly fee in lieu of rent. When selling, all that is re-couped is that very low purchase price.

In the USA

In the United States, housing co-ops are usually categorized as corporations or LLCs and are found in abundance in the Greater New York metropolitan area, and more precisely within New York City itself, Westchester County, New York (which borders the city to the north) and towns in New Jersey that are immediately across the Hudson River from Manhattan, such as Fort Lee, Edgewater, or Weehawken. Unlike in other parts of the world, most of these housing co-ops did not develop as a result of social engineering. Apartment buildings and multiple-family housing simply make up a more significant share of the housing stock in the New York City area than in most other US cities, and the cooperative form of ownership has dominated over the condominium form. Reasons suggested to explain why cooperatives are relatively more common than condominiums in the New York City area are^[1]:

1. Inspired by Abraham Kazan, Cooperatives appeared at least as far back as the 1920's while a legal basis for condominium form of ownership was not available in New York State until 1964.^[2] (Passage of the Condominium Act then opened a wave of construction of condominium buildings.^[3]
2. The cooperative form can be advantageous as a building mortgage can be carried by the cooperative corporation, leaving less financing to be obtained by each co-op owner. Under condominium ownership only the separate condo owners provide financing. Particularly when interest rates are high, a conversion sponsor may find unit buyers more easily under the cooperative arrangement as buyers will have less financing to arrange on their own; the apparent purchase price of a unit in a cooperative building holding an underlying mortgage is lower than a condo purchase. Cooperative unit buyers may not accurately weigh their share of the building's mortgage.<ref name="QA" />
3. Also, later in a building's life after conversion, major new investments required to repair or replace building systems can be raised by a new central mortgage in a cooperative, while in a condominium funds could only be raised by onerous assessments being required of each individual unit owner. However, the New York State's condominium law was amended in 1997 to allow condominium associations to carry building mortgages.^[4]
4. A co-op building's board can impose restrictions and legally discriminate in their selection of new tenant owners.<ref name="QA" />

In New York City, another significant factor in the rise of co-op and condominium ownership is strict and complicated rent control laws that have made many landlords want to get out of the rental property market.

Most of the housing cooperatives in the Greater New York area were converted to that status during the 1980s; generally they were large buildings built between the 1920s and 1950s that a single landlord or corporation owned and rented out that became unprofitable as rental properties. To encourage individual ownership of units, the initial buyers of units (buying from the owner of the entire building) did not have to be approved by a board. Also, the rental tenants living in the building at the time of the conversion were usually given an option to buy at a discount. Many of these buildings, especially in Manhattan, are actually quite luxurious and exclusive; many celebrities live in them and some famous people are even rejected by the board. In the 1990s and 2000s some rental buildings in the Chicago, Washington, DC, and Miami-Fort Lauderdale-West Palm Beach areas went through a similar conversion process, though not to the degree of New York.

Many of the cooperatives originally built as co-ops were sponsored by trade unions, such as the Amalgamated Clothing Workers of America. One of the largest projects was Cooperative Village in Lower East Side of Manhattan. The United Housing Foundation was set up in 1951 and built the Co-op City in Bronx, and were built by architect Herman Jessor.

Student housing cooperatives

However, multiple person cooperative models exist all over the country. Artist, student and community co-operatives are common in the San Francisco Bay Area. Many of these housing co-operatives are members of organizations such as NASCO.

Student-owned and -operated housing co-operatives were formed primarily for economic reasons to provide low-cost housing to university students. Secondarily, they generally provide experience in self-governance and social cooperation. The earliest examples began in the Depression years. Two of the first on record were founded in 1932, Michigan Socialist House at the University of Michigan in Ann Arbor, Michigan and Collegiate Living Organization (University of Florida) in Gainesville, Florida.

Examples of such cooperatives are Berkeley, California; Irvine, California; Santa Cruz; Chicago, Illinois; Iowa City, Iowa; Minneapolis, Minnesota; Oberlin, Ohio; East Lansing, Michigan; Stanford; Ann Arbor, Michigan; Austin, Texas; Providence, Rhode Island; Olympia, Washington; Eugene, Oregon; Ithaca, New York; West Lafayette, IN; Worcester, MA; Princeton, New Jersey; and Buffalo, NY.

In Canada

Housing co-ops in Canada take on many different forms. In Ontario, there are co-ownership, equity and occupant-run co-ops.

Co-ownership co-ops are generally older apartment buildings, incorporated before the Ontario Condominium Act, 1973 came into existence, where shareholders each own one voting share in the corporation that owns the building and have a registered right to occupy individual units as described on their share certificate. Most of these types of co-ops date from the thirties, forties and fifties and are in the city of Toronto. They are similar to condominiums, in that units may be bought and sold by private sale or on the open market. Until relatively recently, these units tended to be bought by older people with home equity who could buy the unit outright, as it was difficult to get a mortgage against these units. However, a number of Ontario credit unions are now offering limited financing, provided that that individual co-op corporations meet their fiscal standards, making these units affordable housing options for younger buyers. Incoming owners must be approved by the building's Board of Directors, and agree to abide by building bylaws and Occupancy Agreements.

Equity co-ops are buildings in which individuals purchase a percentage share tied to the square footage of their unit. More credit unions will offer financing against them than against co-ownerships. They are a relatively new form of construction, designed to encourage owner occupancy by having the building's corporation hold back a percentage of the unit's share equity to ensure owner occupancy.

Then there are co-ops that provide all the privileges of ownership except for the right to make (or lose) money on a primary residence and are run by the people who live there.

The federal and provincial governments in Canada developed legislation in the 1970s that aided potential co-ops by providing start-up funding and financing through mortgages via an agency called the Canada Mortgage and Housing Corporation (CMHC). The government simultaneously began to encourage the development of resource groups to contract with fledgling boards of directors of housing co-ops to develop co-operatives either in turnkey buildings or buildings designed and constructed by architects and builders with which the board contracted to deliver the service. Supervised by the board, the resource groups marketed the units to suitable members, educated them about their rights and obligations as co-operators, and established a management structure which usually included paid staff. These organizations helped in forming initial policies and holding the organization together while all the necessary work is done.

The federal government tied its loan assistance to requirements that these housing co-ops provide a percentage of their units, usually at least 15 to 20 per cent, for what are termed income-tested residents. These people voluntarily provide information to the co-op on a confidential basis about their gross income, and their rent is calculated according to a formula. If the calculated rent is less than the market rent of the units, then the federal government, through another formula, would provide funding to those units to bring their unit revenue up to the market rate. This produced mixed-income co-op housing, in which relatively well-off people lived side-by-side with relatively low-income people and worked with them on committees. This often had the ripple effect of improving the financial health of those less well-off. (It's interesting to note that, depending on your political point of view, such government payments for offsetting the rent could be considered subsidy of the low-income people, or a contractual business arrangement between the government and the co-op which helps to stabilize revenue to the co-op in exchange for accomplishing a social goal for the government for a specific period. This dichotomy is typical of the fact that a housing co-op is somewhere between a corporation and a social agency, and where one places it depends on one's viewpoint -- and the collective viewpoint of each housing co-op.)

Political will dissipated in Canada in the 1990s, however, as other issues occupied politicians and financial belt-tightening by the governments reduced the funds available for the mortgages. In 2004 and 2005, however, the political winds shifted back towards the idea of developing more low-income housing. However, not-for-profit housing co-operatives are committed to the mixed-income concept and have not been able to make much use of the few opportunities that have come available in recent years.Also, the term of many of the government agreements concerning funding for housing subsidies are coming to an end, provoking a debate in individual co-ops and the co-op movement on the extent to which co-ops should continue to be mixed-income forms of housing.

In Canada, there are associations of housing co-operatives. The major one is the Co-operative Housing Federation of Canada (CHF Canada). Most provinces have similar organizations for their area, but many are stand-alone members of the CHF Canada, as opposed to being branches of it. Each such organization charges its member co-operatives a fee based on the number of housing units in the co-op to pay for staff to do its work. This includes lobbying governments, setting up self-help funding and the like. These organizations do not act for individual members, and do not give members advice when the member encounters problems with the Board of their co-op. In most jurisdictions there are no organizations for members of housing co-operatives, in contrast with tenants in a traditional landlord-and-tenant relationship, who can be assisted by various tenant advocacy groups.

In Ontario, the eviction of members of a housing co-operative is governed by special rules set out in the Co-operative Corporations Act. The Board of Directors of the co-operative initiates the process by sending the member a notice to appear, requiring her to attend at a Board meeting at which her eviction will be considered. If the Board votes to evict, the member has a right of appeal to the membership as a whole. In order to enforce the eviction, the Board must bring an application to a judge of the Superior Court, on which occasion the member has the opportunity to present her case to the judge; the judge considers whether the eviction process was conducted fairly and in accordance with due process, and has a residual discretion to refuse the eviction should the judge consider it fair to do so, notwithstanding the decision of the Board. Sometimes this hearing is conducted like a trial, with oral evidence from both sides, while at other times it is conducted based only on written documents submitted to the court; the practice varies from judge-to-judge and courthouse to courthouse, and there is no consensus on the proper procedure or what right a member has to be heard. This process is different from evictions of rental tenants, which proceed in Ontario before a specialized tribunal and in which the tenant is always entitled to an oral hearing. The standard of deference that judges should show to the decisions of Boards is a controversial and unresolved issue in the law, with various cases taking seemingly inconsistent positions on the issue.

A co-operative housing project can resemble a traditional apartment building, or it can be the basis of an intentional community.

"Building co-operatives" ("self-build housing co-operatives" in British parlance, which distinguishes them from worker co-operatives in the building trade) are formed by members who cooperate to build their homes but own their houses on completion. Building co-ops were extremely popular across Canada from the 1930s to the 1960s.

In the UK

There are several hundred housing co-operatives in Britain, and most are "par value" rental co-operatives, meaning that the tenants have no equity share in their house or flat. They may or may not be "fully mutual" meaning that all tenants are members and vice versa. They are normally incorporated as industrial and provident societies. While many housing co-operatives occupy permanent accommodation, there has also been a significant sector of "short life" housing co-operatives, especially in London where rents are high. These are formed to alleviate homelessness by making use of empty housing while it is waiting for redevelopment - akin to a form of legalised squatting.

A registering body and support network for housing co-ops, workers co-ops, social centres and land co-ops is Radical Routes. Radical Routes also produce a booklet called 'How to set up a housing co-op' which is free to download from their website or can by purchased by mail order.

A representative body for Britain's housing co-operatives is the Confederation of Co-operative Housing (CCH).

The government grant aids some housing co-operatives via its social housing agency the Housing Corporation.

Secondary housing co-operatives - co-operatives of co-operatives - may be formed to help with the legal procedures of buying and renovating property.

In Finland

In Finland co-op membership is the prime form of real estate and home ownership.

Except for a very limited number of co-ops that follow the strict Rochdale Principles of one vote, all Finnish co-ops are incorporated as (non-profit) limited-liability companies (asunto-osakeyhtiö).

Membership of a co-op is obtained by buying the shares on the open market, most often through a real estate agent. No board approval is needed to buy shares. In some older co-operatives old members have the right of pre-emption, i.e. the right to buy the shares at the set market price.

Neither is there any requirement for members to live in the co-operative. Owning of apartments for rent is a common form of saving and private investment.

The first housing cooperatives were built around 1900, many of them in the Helsinki neighborhood of Katajanokka, in the national romantic Jugend style. Initially many co-ops were set up by the future members themselves, often workers or artisans in the same trade. By the 1920s co-op founding was the business of professional real estate developers. After World War II nationwide non-profit developer organizations were formed and a system of government provided loans (ARAVA) was introduced. Sale of shares in co-ops with state loans were restricted by limited equity rules for 50 years, the price of the shares was limited by an index.

The Finnish model of the housing co-op was also the basis of the modern U.S. co-ops, as the first cooperative the Finnish Home Building Association in Brooklyn was started in 1918 by Finnish immigrants. [1] [2]

Sweden

A tenant-owner's association (Swedish: bostadsrättsförening) is a legal term used in some Nordic countries (Sweden, Finland and Norway) for a type of joint ownership of property in which the whole property is commonly owned by all members by each having an individual "stake". Members are required to have a tenant-ownership, which represents the apartment, and in most cases live permanently at the address. There are some legal differences between the countries, mainly in the ownership condition. In Sweden, members are formally renting the apartment from the association without limitation in time (in opposite to a normal renting with limitation in time.)

The very first apartment transaction between owner and association, i.e. "the grant", is paid using the stake cost. Later transactions are termed "make overs" and their amounts are defined by market conditions. There is therefore a risk of losing the whole or a part of one's stake capital, although it is uncommon.

Tenant-owner's associations were established during the 19th century and were originally a United Kingdom-based concept (building societies). However, the investment cost is often very high, normally much higher than the original stake price, and requires a bank-loan or other capital resources.

Notes and References

See also

• Affordable housing
• Cohousing
• Intentional Community
• NASCO
• Subsidized housing

External links

• Atlanta Housing Cooperatives
• Co-op Housing (PDF)
• Guide to Co-operative Housing (Canada)
• Ontario Co-oporative Association (Canada)
• Confederation of Co-operative Housing, UK
• Housing Corporation
• List of Housing Co-ops in the Intentional Communities Directory
• National Association of Housing Cooperatives (US)
• Minneapolis, Minnesota
• UHAB (Urban Homesteading Assistance Board), New York
• International Co-operative Alliance
• New York City Co-op Guide
• Inter Cooperative Council (Ann Arbor, Michigan)
• Michigan State University Student Housing Cooperative
• North American Students of Cooperation (NASCO)
• Radical Routes

Part of the series on
Cooperatives
Types of Cooperatives
Agricultural cooperative Building cooperative Credit union Consumers' cooperative Cooperative banking Cooperative federation Cooperative union Cooperative wholesale society Housing cooperative Mutual insurance Retailers' cooperative Social cooperative Utility cooperative Worker cooperative
The Rochdale Principles
Voluntary and open membership Democratic member control Member economic participation Autonomy and independence Education, training, and information Cooperation among cooperatives Concern for community
Political and Economic Theories
Anarchism Cooperative federalism Owenism Socialism Social enterprise Socially responsible investing
Key Theorists
Robert Owen William King The Rochdale Pioneers G. D. H. Cole Charles Gide Beatrice Webb Friedrich Raiffeisen David Griffiths
Organizations
List of cooperatives List of cooperative federations International Co-operative Alliance Co-operative Party
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