Housing cooperative

A housing cooperative, co-op, or housing company (especially in Finland), is a legal entity, usually a cooperative or a corporation, which owns real estate, consisting of one or more residential buildings; it is one type of housing tenure. Housing cooperatives are a distinctive form of home ownership that have many characteristics that differ from other residential arrangements such as single family home ownership, condominiums and renting.

The corporation is membership-based, with membership granted by way of a share purchase in the cooperative. Each shareholder in the legal entity is granted the right to occupy one housing unit. A primary advantage of the housing cooperative is the pooling of the members’ resources so that their buying power is leveraged, thus lowering the cost per member in all the services and products associated with home ownership.

Another key element in some forms of housing cooperatives (but not Finnish housing companies, for example) is that the members, through their elected representatives, screen and select who may live in the cooperative, unlike any other form of home ownership.

Housing cooperatives fall into two general tenure categories: non-ownership (referred to as non-equity or continuing) and ownership (referred to as equity or strata). In non-equity cooperatives, occupancy rights are sometimes granted subject to an occupancy agreement, which is similar to a lease. In equity cooperatives, occupancy rights are sometimes granted by way of the purchase agreements and legal instruments registered on the title. The corporation’s articles of incorporation and bylaws as well as occupancy agreement specifies the cooperative’s rules.

The word cooperative is also used to describe a non-share capital co-op model in which fee-paying members obtain the right to occupy a bedroom and share the communal resources of a house that is owned by a cooperative organization. Such is the case with student cooperatives in some college and university communities across the United States.

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.

In non-equity cooperatives and in limited equity cooperatives, 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. In non-equity cooperatives, 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 ownership cooperatives, occupancy rights are transferred to the purchaser by way of the title transfer.

Since the housing cooperative holds title to all the property and housing structures, it bears the cost of maintaining, repairing and replacing them. This relieves the member from the cost and burden of such work. In that sense, the housing cooperative is like the landlord in a rental setting. However, another hallmark of cooperative living is that it is nonprofit, so that the work is done at cost, with no profit motive involved.

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.

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.

A housing cooperative’s board of directors is elected by the membership, providing a voice and representation in the governance of the property. Rules are determined by the board, providing a flexible means of addressing the issues that arise in a community to assure the members’ peaceful possession of their homes.

Finance
A housing cooperative is normally de facto non-profit, since usually most of its income comes from the rents paid by its residents (if in a formal corporation, then shareholders), 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.)

New co-ops are often founded by the builder, who resigns from the co-op when all the shares have been sold. It is relatively difficult to start a housing co-op from scratch 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.

In the lifecycle of buildings, the replacement of assets (capital repairs) requires significant funds which can be obtained through a variety of ways: assessments on current owners; sales of Treasury Stock (former rental units) to new shareholders; draw downs of reserves; unsecured loans; operating surpluses; fees on the sales of units between shareholders and new and increases to existing mortgages.

There are housing co-ops of the rich and famous: John Lennon, for instance, lived in The Dakota, 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.

Market-rate and limited-equity co-ops
There are two main types of housing co-operative share pricing: 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 may carry 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.

By country

Finland
In Finland holding shares in a housing company is a common form of real estate and home ownership. Owning an apartment in Finland usually means owning shares in a housing company; ownership of a certain set of shares in turn confers the right to use a certain part of the building owned by the company.

Except for a very limited number of co-ops that follow the strict Rochdale Principles of one vote, all Finnish housing cooperatives are incorporated as (non-profit) limited-liability companies (Finnish: asunto-osakeyhtiö, Swedish: bostadsaktiebolag), where one share usually represents one square meter of the apartment, but may represent the whole apartment. Housing companies are regulated by Finnish law as a particular type of corporation.

Housing company shares typically trade on the open market, most often through real estate agents. No board approval is needed to buy shares. In some older companies existing share holders have the right of pre-emption, i.e. the right to buy the shares at the set market price.

There is usually no requirement for share holders to live in the co-operative. Owning apartments for rent is a common form of saving and private investment. There may be provisions against owning shares for more than one apartment in the same co-op.

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 housing companies 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 company was also the basis of the modern U.S. co-ops, as the first cooperative, the Finnish Home Building Association in Finntown (Brooklyn, New York), was started in 1918 by Finnish immigrants.

France
In 2013, the opening of La Maison des Babayagas, an innovative housing co-op in Paris, gained world-wide attention. It was formed as a self-help community and built with financial assistance from the municipal government, specifically for female senior citizens. Located in the Paris suburb of Montreuil after many years of planning, it looks like any other apartment building. The senior citizens stay out of nursing homes, by staying active, alert, and assisting one another.

The purpose of the Baba Yaga Association is to create and develop an innovative lay residence for aging women that is: (1) self-managed, without hierarchy and without supervision; (2) united collective, with regard to finances as well as daily life; (3) citizen civic-minded, through openness to the community /city and through mutual interaction, engaging in its political, cultural and social life in a spirit of participatory democracy; (4) ecological in all aspects of life, in conformity with the values and actions expressed in the Charter of Living of the House of Babayagas.

Generally, the association’s activities are tied to the purpose above, in particular the development of a popular entity called the University of Knowledge of the Elderly (UNISAVIE: Université du savoir des vieux), and the initiation of a movement to promote other living places that are organized into similar networks.

The community charter sets out expectations for privacy. Each apartment is self-contained. Monthly meetings assure the optimal routines of the building and ensures that each person may participate fully and with complete liberty of expression. Plans set out the routine intervention of a mediator who could help get to the bottom of the causes of eventual conflicts in order to allow for their resolution.

The success of the Paris co-op inspired several Canadian grassroots groups to adopt similar values in senior housing initiatives; these values include autonomy and self-management, solidarity and mutual aid, civic engagement, and ecological responsibility.

Germany
In the Industrialisation in the 19th century there were many housing cooperatives founded in Germany. Presently, there are over 2,000 housing cooperatives with over two million apartments and over three million members in Germany. The public housing cooperatives are organised in the GdW Bundesverband deutscher Wohnungs- und Immobilienunternehmen (The Federal association of German housing and real estate enterprise registered associations).

India
In India most ‘flats’ are owned outright. i.e. the title to each individual flat is separate. There is usually a governing body/society/association to administer maintenance and other building needs. These are comparable to the Condominium Buildings in the USA. The laws governing the building, its governing body and how flats within the building are transferred differ from state to state.

Certain buildings are organized as “Cooperative Housing Societies” where one actually owns a share in the Cooperative rather than the flat itself. This structure was very popular in the past but has become less common in recent times. Most states have separate laws governing Cooperative Housing Societies.

The Netherlands
In the Netherlands there are two very different types of organization that could be considered a housing cooperative:

Housing corporation
A housing corporation (woningcorporatie) is a nonprofit organization dedicated to building and maintaining housing for rent for people with lower income. The first housing corporations started in the second half of the 19th century as small cooperative associations. The first such association in the world, VAK (“association for the working class”) was founded in 1852 in Amsterdam. Between 2.4 and 2.5 million apartments in the Netherlands are rented by the housing corporations, i.e. more than 30% of the total of household dwellings (apartments and houses).

Owner association
A (house) owners’ association (Vereniging van Eigenaren, VvE) is by Dutch law established wherever there are separately owned apartments in one building. The members are legally owners of their own apartment, but have to cooperate in the association for the maintenance of the building as a whole.

Philippines
In the Philippines, a tenant-owner’s association is often used as a means to buy new flats. When the cooperative is created, it takes the major part of the loan needed to buy the property. These loans will then be paid off during a fixed periods of years (typically 20-30), and once this is done, the cooperative is dispersed and the flats are transformed into condominiums.

Scandinavia
A tenant-owner’s association (Swedish: bostadsrättsförening, Norwegian: borettslag, Danish: andelsboligforening) is a legal term used in the Scandinavian countries (Sweden, Denmark, and Norway) for a type of joint ownership of property in which the whole property is owned by a co-operative association, which in its turn is owned by its members. Each member holds a share in the association that is proportional to the area of his apartment. 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 concerning the conditions of ownership.

Tenant-owner’s associations were established during the 19th century and were originally a United Kingdom-based concept (building societies). The market price of existing tenant-ownership shares is often very high, normally much higher than the original stake price.

Sweden
In Sweden, 16% of the population lives in apartments in housing cooperatives, while 25% live in rented apartments (more common among young adults and immigrants) and 50% live in private one-family houses (more common among families with children), the remainder living in other forms such as student dormitories or elderly homes.

Membership in a housing cooperative (bostadsrättsförening) is granted to owners of shares in the association, and gives right (bostadsrätt) to inhabit the apartment corresponding to the share for an unlimited time. Shares can be bought and sold on the open real estate market. This is one of the main forms of home ownership in the country, and a membership in a housing cooperative is generally held to be the same thing as owning (as opposed to renting) an apartment. The most usual physical/legal form is a block of flats owned freehold by a cooperative.

Each housing cooperative has their own bylaws. The members hold annual meetings in the housing cooperative, in which they elect a board of directors that take on the responsibility of managing the cooperation during the upcoming year. In most normal-sized cooperatives the board members are recruited among the inhabitants. The board sets the monthly fee, secures proper administrative procedures, keeps the property in good condition, and may initiate large renovation projects when necessary. The board is also involved when a member sells his share of the co-op to someone else, as the board has to make decisions on allowing the exit of old members and the entry of new members, according to the bylaws (with some exceptions, e.g., the applicant’s nationality, income, or wealth are not valid grounds to refuse entry). The board is also involved when individual members want to initiate large renovation projects, or rent out their apartment to a non-member.

The housing cooperative is a special legal entity, regulated in Swedish law. It has the same obligations of bookkeeping and issuing annual reports as companies and it can take mortgages in the property if needed. In addition, each member may also take mortgages in his bostadsrätt in order to finance his acquisition of it. The monthly fee paid by the members to the cooperative is intended to cover the operational and financial expenditures of the cooperative. The financial situation of the Swedish cooperatives vary a lot, and on rare occasions cooperatives may go bankrupt. If bankruptcy occurs, the property is sold and the remaining assets are shifted out to the members (who may stay on as tenants or try to form a new cooperative).

In existing properties, tenants may form a housing cooperative together, and then make an offer to the owner to buy the property. When such a cooperative has been formed, it automatically becomes the first prospective buyer should the owner desire to sell. The acquisition is financed by a combination of equity (i.e. the ‘stakes’ paid by the members) and bank loans.

In properties intended to be owned by housing cooperatives from the start, the construction company (which is either a non-profit association such as HSB, Riksbyggen, or SBC; or a for-profit developer such as PEAB, Veidekke, or Skanska) normally forms a cooperative when the building is erected, and then sells the different apartments (i.e., their shares in the co-op) at fixed prices. When all apartments are sold, the new members take over the responsibility for the property and elect their own board of directors.

Switzerland
In Switzerland 5.1% of all housing units are in cooperatives. The Schweizerischer Verband für das Wohnungswesen (Swiss cooperative housing federation) represents around 1,500 housing cooperatives with about 160,000 housing units.

United Kingdom
Housing co-operatives are uncommon in the UK, making up about 0.1% of housing stock.

Most are based in urban areas and consist of affordable shared accommodation where the members look after the property themselves. Waiting lists can be very long due to the rarity of housing co-operatives. In some areas the application procedure is integrated into the council housing application system. The laws differ between England and Scotland. The Confederation of Co-operative Housing provides information on housing cooperatives in the United Kingdom and has published a guide on setting them up. The Shelter website provides information on housing and has information specific to England and Scotland.

The Catalyst Collective provides information about starting co-operatives in the UK and explains the legal structure of a housing coop. Radical Routes offers a guide on how to set up a housing co-operative.

Student housing cooperatives
Factors of raising cost of living for students and quality of accommodation have led to a drive for Student Housing Co-operatives within the UK inspired by the existing North American Student Housing Cooperatives and their work through North American Students of Cooperation. Edinburgh Student Housing Co-operative and Birmingham Student Housing Co-operative opened in 2014 and Sheffield Student Housing Co-operative in 2015. All existing Student Housing Co-operatives are members of Students for Cooperation.

Source From Wikipedia