University of Wisconsin Center for Cooperatives

Homestead Happenings: Homestead Housing Newsletter

Homestead Happenings is a newsletter for Homestead Housing Cooperatives, published by the Homestead Housing Center; 5500 Cenex Drive, Station 210; Inver Grove Heights, MN 55077. E-mail: hhc@winternet.com

Co-op Counsel's Corner: A Comparison Between Condominiums and Cooperatives

by Charles Bassford, Esq.

Mr. Bassford is an attorney with the firm of Bassford & Hanvik, P.A., Bloomington, MN. A substantial portion of Mr. Bassford's practice is senior multi-family residential housing. Mr. Bassford and his firm represent several senior housing cooperatives and condominiums in Minnesota's Twin Cities, including the nation's first cooperatively owned senior building, 7500 York, in Edina, MN. The facilities represented by the law firm contain over 1,500 homes.

During the course of my legal representation of both Cooperatives and Condominium Associations, it has come to my attention that people oftentimes have difficulty distinguishing cooperative housing from condominium housing. There are significant differences. In a condominium, each owner has separate legal title to an individual dwelling unit and an undivided fractional interest in the common elements of the project as a whole. In a cooperative, a member has a membership in the cooperative corporation which in turn holds title to the entire project. Further, membership in a cooperative housing corporation entitles its owner to the occupancy of a dwelling unit in the project. This right of occupancy is appurtenant to, and inseparable from, the membership interest in the cooperative. The following outline summarizes other important differences between membership in a housing cooperative and unit ownership in a typical condominium:


Issue

Typical Cooperative

Typical Condominium

How Interest is AcquiredThrough subscription and application for membership Through real estate earnest money contract or purchase agreement for unit.
Nature of InterestMember owns Membership and Occupancy Agreement. Such ownership interest constitutes personal property. Unit owner holds fee title to unit, along with an undivided interest as tenant in common with other unit owners in project common elements. Unit and common element interest is real property.
ManagementCooperative corporation administers whole building under terms of By-Laws and Occupancy Agreement, enforced by a Board of Directors. Common elements of project are administered by owners' association; owners have exclusive control over and maintain own individual units.
VotesOne vote per Membership, regardless of unit or Membership value; owners of more than one Membership often have only one vote. Voting formulas vary; in some projects, owe owner, one vote; in others, unit size determines number of votes.
Project FinancingMost often, a blanket mortgage finances entire project, including units and common elements. Individuals must obtain their own unit mortgages. Each mortgage encumbers the unit and undivided interest in common elements.
Association Dues or AssessmentsPayable under Occupancy Agreement, and includes all maintenance and financing costs, including debt service, insurance, maintenance, operating costs, property taxes and reserves. Assessments are levied against owner and unit and are a lien against the unit; include only common element administrative expenses, reserves and insurance. Property taxes and debt service are paid separately by the unit owner.
Use or OccupancyCooperative may impose requirements through By-Laws, regulations, house rules, and policies adopted by the Board of Directors, subject only to limitations established by statutes and ordinances. Restrictions (other than prohibitions against transient or investment use) are seldom found and are difficult to enforce because they may be seen as "restraint on alientation" under real estate law.
Control over ResalesCooperative Board of Directors must approve any new member. Also, Cooperative has first option to buy the Membership of a deceased/departing Member. The association normally has no control over unit sale or resale.
Association Involvement in ResaleCooperative usually will assist a Member to find prospective purchasers. Usually, an individual must find own unit purchaser.
Nature of Sale or Resale TransactionMembership and Occupancy Agreement transaction does not involve real estate conveyancing or real estate financing. Deed to unit and mortgage of unit are real estate transactions.

Cooperative and condominium unit owners enjoy essentially similar income tax advantages under the Internal Revenue Code and State law, and enjoy as well similar property tax (homestead) treatment under State law.


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