After successfully completing this topic, you will be able to distinguish between condominiums and cooperatives.
Organization of Cooperatives
Cooperatives are organized as corporations. Buyers receive stock of the corporation as evidence of ownership. The buyer gets a proprietary lease that allows the buyer to occupy the property. The number of shares in the corporation is based on the size of the cooperative, its location in the property, views, and which floor the apartment is on.
Even though the corporation owns all the real estate, each apartment is separately assessed for property taxes. Owners pay their property taxes to the corporation as a form of proprietary lease rent. The taxes are deductible for income taxes. If there is a mortgage on the property, the mortgage would encumber the entire property and each shareholder would pay a prorata amount of the payment. Owners are responsible for their shares of the common expenses.
When owners want to sell their shares, they may be required to sell back their stock to the corporation or to a buyer who must be approved by the Board.
|Example of Cooperative Stock Purchase:|
A cooperative corporation is selling shares to 100 apartments. The corporation issues 1,000 shares. Assume that the appraised value of all the apartments is $30 million, the appraised value of a 2-bedroom property on the first floor is $180,000, and the appraised value of a 4-bedroom penthouse is $1,200,000.
It is logical to assume that the purchaser of the 2-bedroom apartment would get 6 shares of stock ($180,000 ÷ $30,000,000 x 1000 shares) The purchaser of the penthouse would get 40 shares. ($1,200,000 ÷ $30,000,000 x 1000 shares).
Buyers of cooperative shares have the right of rescission after signing a purchase contract to review the documents. Buyers of newly constructed cooperatives may cancel within 15 calendar days after the buyers receives all documents. The buyer has 3 business days to cancel a resale cooperative.
Chapter 719 has specific wording that must be on purchase contracts or the buyer can void the contract before closing. The developer of a cooperative apartment must provide a full range of disclosures under the law.
A private party seller (resale) must give the following documents to the buyer
• a current copy of the articles of incorporation,
• the bylaws,
• the rules of the association, and
• the question and answer sheet.