What Is a Cooperative?

Under a cooperative form of ownership, a home buyer typically does not obtain title to a particular unit. Instead, title to all of the units in the cooperative is held by a corporation. A home buyer purchases shares of stock in the corporation. Instead of a deed, the home buyer receives a lease for the particular unit. The number of shares of stock in the corporation the home owner must purchase is dependent upon the size of the unit.

An ownership interest in a cooperative is similar to an ownership interest in a condominium in that unit owners share the responsibility for the payment of common fees. With a condominium, however, a home buyer takes title to the property.

Why Opt for Cooperative Ownership?

Typically, when a home buyer purchases shares of stock in a cooperative, the closing costs associated with the transaction are lower. The reason is that there is no actual transfer of title to the property; thus, transfer taxes are not collectable by taxing authorities.

General Considerations

If you are a home buyer who wishes to buy into a cooperative, consider the following:

• Obtain a copy of the governing documents. Read the documents carefully and consider whether any restrictions on the real property conform to your plans for the property and your expectations. If not, are the restrictions waivable?
  
• Consider the issue of common area maintenance fees. How much will you owe? Does the cooperative have a reserve? Has the cooperative exceeded its budget for expenditures in the past? What types of repairs can you expect in the future?
  
• Is there any litigation pending against the cooperative? If so, what is the nature of the litigation?
  
• Are most of the property owners in residence or are a large number of the properties rented to others? Do you have the option of renting the property at all?
  
• Does the cooperative carry general liability insurance?

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