Coop vs Condo: What’s The Difference?

coop vs condoAlthough both Coops and Condos appear to be similar in offering a certain lifestyle for those who don’t want the hassle of maintaining a home, there are legal and financial differences that you should be aware of as you consider a purchase of either type of property. This article from Realty Times provides a good foundation for understanding the differences between Coops and Condos.

A cooperative is a multi-unit apartment building, in which each resident has an interest in the entire building, and a lease (or contract or share of stock) enabling the owner to occupy a particular apartment unit within the building.

If you own a condominium, you actually own your entire apartment, as well as a percentage of the common areas (called the “common elements”). A cooperative owner -often called a shareholder — does not own the unit. In fact, you could call such owner a “tenant”.

The cooperative association, which is usually a corporation consisting of all the unit owners, owns the entire building, including all of the individual units. Each co-op unit owner either owns shares in the cooperative association — just like owning shares in any other corporation – or for non-stock corporations has what is known as a “proprietary lease”. This lease spells out the rights and responsibilities of the owner, as well as the obligations and duties of the Association.

Decisions on the management, lifestyle and financial details are made by the cooperative unit members themselves, either through their vote at regularly scheduled meetings, or by delegation to an elected board of directors, which runs the day-to-day operations of the cooperative.

Cooperative residents generally get the same tax treatment as other homeowners. If they have a loan and if that loan is secured by their ownership documents (ie. the stock certificate or the proprietary lease), they can deduct the yearly interest paid on that loan. Additionally, if the cooperative association has a mortgage on the entire building — called a blanket or underlying mortgage -shareholders can deduct their proportionate share of the interest on that mortgage. And under most circumstances, they can also deduct their proportionate share of the real estate taxes which the cooperative pays.

The most important distinction between a condominium and a cooperative is that most cooperative associations require that a prospective purchaser be approved by a membership committee comprised of current cooperative owners. The approval process allows the committee to approve or reject a potential purchaser. However, there are only two grounds on which rejection can legally be based: financial or unwillingness to abide by the terms of the association’s rules and regulations. If the membership committee believes that the potential purchaser does not have the financial capacity to live in the complex — or if the committee determines that the potential purchaser has demonstrated an unwillingness or an inability to comply with the operating rules — that potential purchaser may be rejected for ownership. However, under no circumstances can the applicant be rejected for other reasons, such as age, sex, race, sexual preference or religion.

A condominium is governed by the applicable law in the jurisdiction where the property is located. The relevant documents include the Declaration, Bylaws, Rules and Regulations and Plats and Plans. In coops, however, there are few substantive statutes that govern or regulate the associations. The operating documents are the Articles of Incorporation, Bylaws, House Rules and Proprietary or Ownership materials.


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