What are Co-Ops?

A cooperative, more commonly known as a co-op, is generally much more like living in an apartment or a condo than like a single-family home. A large number of co-op buildings actually started out as rental buildings but were later converted. Co-ops are more restrictive than condominiums but they also offer residents a greater say in several aspects of how the property is managed.

Buying into a co-op or another type of property purchase is a major investment. It is important to talk to an experienced real estate lawyer in your area to make sure you understand your rights and are protecting your interests.

Ownership "Shares" in a Co-op

The owner of a co-op does not own his or her unit. The co-op is generally a corporation, with a corporate board of directors, and each resident is a "shareholder." Co-op buyers do not sign a deed. Instead, they purchase shares of the corporation, shares that include a lease granting use of a specific unit. The number of shares owned can be based on the size of the unit.

As shareholders in the property, tenants get voting rights on issues affecting the property, including fees, common spaces, improvements, and when new prospective buyers are approved to live in the building.

There can be several advantages of living in a co-op. A co-op may be more affordable than a single-family home. Cooperatives are also a good alternative for people who no longer want to be renters. Renters may have to consider moving anytime their lease is up or risk higher rental rates. A co-op offers more stability compared to apartments.

Co-op Mortgage

The "mortgage" that one receives when making a co-op purchase is not really a mortgage but rather a loan to purchase shares in the corporation. For the buyer, the loan to purchase shares in a co-op functions like a mortgage for all intents and purposes.

Some lenders do not offer co-op loans. Lenders that do offer co-op loans may have additional requirements for approval, including a higher minimum down payment. Your lender may also review the co-op board, financial disclosures, and co-op policies before approving a loan. If the co-op limits your ability to sell the shares, like a limited equity co-op, a lender may be less willing to approve a co-op loan.

Maintenance Fees in a Housing Cooperative

In addition to the share purchase price for a co-op, there may also a monthly maintenance fee for the upkeep of the property. Monthly fees can include utilities, maintenance, repairs, and property taxes. This fee can range from a small amount to levels higher than mortgage payments. Parts of the maintenance fee may be tax-deductible.

It is important for prospective buyers to understand all the fees involved in a purchase, including the volatility of maintenance fees. If you are looking to buy, review the co-op's financial records to get a better idea of the financial condition of the corporation.

Property Improvements and Additions

Because co-op owners own shares instead of their individual units, they are generally not allowed to do any major construction inside their apartments beyond simple maintenance. A co-op owner may not be able to put in a new kitchen or tear down any walls. Some changes to the unit must be decided by a shareholder vote or by a vote of the board of directors.

With limited property improvement options, co-op living is very much like apartment living. The positive side of this is that residents are not responsible for making their own repairs. Generally, an on-site maintenance crew or superintendent handles regular repairs.

A Real Estate Lawyer Can Help

If you have questions about the terms of your co-op agreement, an experienced real estate attorney can answer your questions and look over the terms.