Condominiums and Cooperatives

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Condominiums and Cooperatives

Two common forms of multiple-unit dwellings, with independent owners or lessees of the individual units comprising the multiple-unit dwelling who share various costs and responsibilities of areas they use in common.

A condominium is a multiple-unit dwelling in which there is separate and distinct ownership of individual units and joint ownership of common areas. For example, in an apartment house, the individual owners would each own their own apartments while all the owners of the separate apartments would together own the parts of the building common to all of them, such as the entrances, laundry rooms, elevators, and hallways. The building is managed by the condominium association, either directly or through a professional manager. The owners of the individual units are jointly responsible for the costs of maintaining the building and common areas, but they are individually responsible for the maintenance expenses of their particular units.

A cooperative apartment house is usually owned and managed by a corporation, and the shareholders are tenants who lease their apartments from the corporation. The relative size of the apartment that a shareholder-tenant leases determines the proportion of the corporation's stock that that shareholder owns. Each shareholder-tenant pays a monthly assessment, based upon his or her proportionate share of the stock, to cover the principal and interest on the building mortgage, taxes, and maintenance costs.

History

The development of condominium and cooperative housing arrangements accelerated with increasing costs of real estate, inflation, increased urbanization, and population growth. Until the 1960s, the condominium as a separate form of ownership was relatively unknown in the United States. The development of condominiums was hastened when the Fair Housing Act of 1968 (42 U.S.C.A. § 3601 et seq.) authorized the use of mortgage insurance, established under the National Housing Act (12 U.S.C.A. § 1701 et seq. [1934]), on one-family units in multiple-family structures.

Advantages

Some advantages of cooperative or condominium ownership are ownership interest in the premises; sharing high building site and maintenance costs; Income Tax deductions for the interest and taxes paid by individual owners; decreased risk of personal liability of the various members; and increased choice of location, since high real estate costs frequently preclude individual housing on expensive sites.

Condominium Ownership

An individual who purchases a unit in a condominium receives title to such unit in fee simple, owning it outright. The owner has all legal rights incident to ownership, including the right to sell, absent a Restrictive Covenant limiting its use.

Title to a condominium also encompasses ownership of the land and common areas with the remaining unit owners. The individual owner has certain rights, such as use of the common areas, and certain obligations, such as paying his or her share of the expenses incurred for maintenance or improvements of the common areas, regardless of whether the individual owner approves of the upkeep or improvements. The size of the share of operating, maintaining, and improving costs of a building and common areas to be borne by an individual unit owner depends on the size of that owner's unit, usually measured by the number of rooms in the unit.

The three basic instruments used in the purchase of a condominium are a deed to the unit; a declaration of condominium; and the bylaws of the condominium association, the membership of which is comprised of the units' owners.

An individual buying a condominium receives a deed, which must be duly recorded in the appropriate county office. Such deed ordinarily describes the individual unit, the building in which the unit is located, and the property upon which the building is constructed. Generally it will also embody all limitations or restrictions imposed on the use of the unit and any other details agreed upon by the purchaser and seller. The deed cannot contain any provision that is contrary to the rules of the condominium or declaration of condominium.

The declaration of condominium is the official record of the owner's rights and duties pursuant to receiving title to the condominium. It also states precisely what portions the owner of a unit owns and must maintain. State statute prescribes what must be included in the declaration of condominium. These requirements vary from one state to another, but a declaration of condominium must ordinarily contain the following: (a) a legal description of the land and buildings of the condominium, which is essentially the same information contained in the deed; (b) a description of each unit, including the address, size, number of rooms, and exact location within the building; (c) a description of the common areas and any restrictions upon the use thereof; (d) the pecuniary worth of each unit of the condominium and of the land under it, as well as the percentage of shares in the common areas assigned to each unit owner, usually based upon the number of rooms in his or her unit; (e) the number of votes assigned to each unit. The declaration of condominium must also state the procedure for making decisions concerning repairs, improvements, and similar costs, as well as provisions for amendment of the declaration or for ending the condominium arrangement. The number of votes assigned to each unit owner is in proportion to that owner's percentage share. A declaration must also provide the procedures for owners' payments of fees and other costs and sanctions imposed for failure to pay them.

Condominium unit owners must adhere to the regulations set forth in the bylaws. The bylaws of a condominium—the rules and regulations by which the condominium association governs itself—are generally drafted by the developers of the condominium or the original purchasers of the individual units.

The bylaws ordinarily establish procedures for electing the officers or board members of the condominium association, conducting meetings, and handling routine building maintenance and insurance for the common areas. They prescribe any restrictions that may be imposed on the sale of individual units and penalties for violation of the rules.

A condominium unit may be purchased for cash; however, the more common procedure is for a mortgage to be obtained to help finance it. Since each unit is owned individually, if an owner defaults on mortgage payments or property taxes, no other unit owner is liable.

Cooperative Organization

A cooperative can be created in a number of ways:

  1. Corporate organization. The most common type of cooperative organization is its corporate form. Three documents are required for the formation of a corporate cooperative: a corporate charter or certificate of incorporation; bylaws; and a proprietary lease or occupancy agreement. These three instruments together constitute the contract between the individual owners and the corporation. The relationship of the unit owners to the corporation is such that they are tenants as well as shareholders. Corporate financing is ordinarily accomplished by a single mortgage executed by the corporation, which covers the entire project. Since separate mortgages on the individual units are uncommon, occupants are dependent upon the financial stability of their fellow occupants.
  2. Co-ownership in joint tenancy. In a Joint Tenancy, title to the premises vests in all of the co-owners as joint tenants, which means that they have an undivided interest coupled with a Right of Survivorship. Such an arrangement includes provisions for exclusive occupancy of individual units, vested in designated co-owners. This type of plan is not often practicable, since there must be four unities in a joint tenancy: time, title, interest, and possession.
  3. Tenancy in common. The occupants own the entire project collectively as tenants in common. Each tenant is given the right to occupy exclusively a specifically designated unit. A Tenancy in Common differs from a joint tenancy in that each tenant owns an undivided portion; however, the portions are not necessarily equal. In addition, each tenant has the legal right to dispose of his or her undivided share or a portion thereof by deed or by will. Various covenants are employed to enforce the financial obligations in maintenance and operation by the co-tenants.
  4. Business trust. In a Business Trust or Massachusetts trust, title to the entire premises vests in the trustees of the trust. Certificates of beneficial interest are issued to the individual tenants, and each beneficial owner is assigned an exclusive right of occupancy of a specific unit under a proprietary lease.

Each tenant-shareholder may deduct on his or her federal income tax return a proportionate share of the interest that the cooperative corporation has paid upon its blanket mortgage, so long as the corporation does not obtain in excess of 20 percent of its gross income from sources apart from its tenant-shareholders.

Further readings

Barton, Stephen E., and Carol J. Silverman, eds. 1994. Common Interest Communities: Private Governments and the Public Interest. Berkeley: Univ. of California Press.

Hyatt, Wayne S. 2000. Condominium and Homeowner Association Practice: Community Association Law. 3d ed. Philadelphia, Pa.: American Law Institute-American Bar Association, Committee on Continuing Professional Education.

Rohan, Patrick J. 1999. "Preparing Community Associations for the Twenty-First Century: Anticipating the Legal Problems and Possible Solutions." St. John's Law Review 73 (winter): 3–42.

Thomsett, Michael C. 1988. How to Buy a House, Condo, or Co-Op. Mount Vernon, N.Y.: Consumers Union.

Trigiani, Lucia Anna. 2002. Reinventing the Rules: A Step-By-Step Guide for Being Reasonable. Alexandria, Va.: Community Associations Press.

Cross-references

Community Property; Lease.

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