A housing cooperative forms when people come together to own and control the buildings in which they live. They form a co-op corporation and pay a monthly amount (called carrying charges) that cover operating expenses. It is the co-operative that owns the building, land and common areas and members buy shares in the co-op.
How is a co-operative different from a condo?
With a cooperative, each resident purchases a share in the cooperative, becoming part owner of the building and the property it sits on. This share also gives them the right to occupy a unit in the building. There are more common space areas in a cooperative building, considered extensions of the member's home. There is a staff on site, including a manager and maintenance person, who handle the day-to-day business of the co-operative, provide concierge type services and help the Board of Directors and member committees manage the budget and plan events. Like condos, there is a monthly fee that covers general operating expenses, but general maintenance and repair of plumbing, heating and cooling are provided to the member at no additional cost.
In a condominium, the resident owns the space within the four walls of the unit, and pays an association fee to cover general operating costs. Residents are responsible for all repairs and maintenance in their unit. Management is generally offsite and is not directly involved with condo residents. It is not unusual for condominiums to assess their residents when major repairs or replacements such as windows, siding and roof are needed.
Most cooperatives are called limited equity, but Gramercy Club at Burnhaven Drive is a market rate or full equity co-operative. What does that mean?
With limited equity cooperatives there is a master mortgage on the cooperative, and the term of that mortgage is usually 30-40 years. Each member pays a percentage of the value of the unit when they move in, and shares in the mortgage with other members. While this type of ownership does not require a member to go through all the paperwork of getting a mortgage on their own, it limits how much they can sell their unit for in the future. Generally, the equity increase per year is 2-3%. Also, they cannot refinance until the entire building refinances. So, if the co-operative takes out a mortgage at 5%, the individual has to buy into the mortgage at that same interest rate. It should be noted that these master mortgages are insured by HUD, which has strict guidelines on when buildings can refinance and how they budget their expenses, and when individual owners can make major improvements to their unit.
In contrast, a market rate cooperative does not have a master mortgage, so each member can finance as much or as little as they choose, and then refinance or even pay off their mortgage whenever they want. They can also sell their home for whatever the market suggests, and are not limited to a 2-3% increase.
CO-OP 7 PRINCIPLES
Voluntary and Open Membership: Membership in a housing co-op is open to all who can use the co-op's services and accept the responsibilities of being a member.
Democratic Member Control: Housing Co-ops are controlled by the members. Each unit has one vote. Members receive the information they need to make good decisions and take part in the life of the co-op through member's meetings, committees, and the Board of Directors.
Member Economic Participation: The Housing Cooperative is a not-for-profit organization. The co-op does not pay a return on member's shares. Instead, it sets aside reserves for the future and charges the member only what it needs to operate soundly, now and into the future.
Autonomy and Independence: Housing co-ops are independent associations. They follow the laws that apply to them, but the members control the co-op.
Education, Training and Information: Housing co-ops offer education and training to members, directors and staff so that everyone can play a full role in the life of the co-op.
Cooperation Among Cooperatives; By organizing together through a Management Company, Housing Co-ops grow stronger and help to build a healthy co-op setting.
Concern for Community: Housing Co-ops work to build strong communities inside and outside the co-op. They help to improve the quality of life for others and take care to protect the environment.