Understanding Cooperatives or Co-Op Communities
Cooperative housing communities, or co-ops, share resemblances with condominiums, homeowner (HOA), and townhome community associations. They all have similar goals, including managing common areas, preserving the community’s financial health, enforcing rules, and maintaining the property on behalf of the residents. However, cooperatives also present distinct differences in terms of ownership structure and board responsibilities.
In a condominium or HOA, individual owners hold the deed to their unit or home. They typically also share ownership in the community association’s common areas (ex., swimming pool, green spaces, parking garage, clubhouse).
In contrast, cooperative members do not own individual units outright. Instead, they own shares in a corporation or trust that holds the title to the entire building or complex. As the legal owner of the property, the corporation provides shares that allow shareholders to occupy a specific unit, but legally, they do not own the unit itself.
To understand the respective rights and obligations of a shareholder and the cooperative, one can look to the certificate of incorporation, articles of incorporation, by-laws, and the proprietary lease agreement.
Cooperative Governance and Board Responsibilities
This ownership difference fundamentally changes co-ops’ responsibilities and governance structure compared to other community associations. Here are three key responsibilities of co-op board members that arise from the unique ownership structure of cooperatives.
- Ownership vs. Leasing Structure
In a co-op, members do not own their units but lease them from the corporation or trust that holds title to the property. The board acts as a governing body and manages all aspects of the property. This creates a broader scope of responsibilities for co-op boards than for those managing condominiums or HOAs, where individual owners manage much of their individual homes or condominium units. - Approval of Sales or Transfers
Co-op boards typically have greater control over who can move into the community. Potential buyers must be approved by the board, and this process often includes interviews, financial reviews, and references. This is a significant contrast to community associations, where the sale of a unit generally requires little to no board involvement. - Maintenance and Repairs
Like other community associations, co-op boards manage the maintenance and repair of common areas. Depending on the co-op’s rules, they may also handle repairs within individual units. This contrasts with other community associations where responsibility for repairs within individual units or homes typically lies with the owner, with the board focused on common areas.
Best Practices for Cooperative Board Members
In both co-ops and other associations, board members have a fiduciary responsibility to act in the community’s best interest. This includes transparent financial management, proper use of reserve funds, and compliance with legal requirements.
To manage a cooperative effectively, board members must embrace a comprehensive approach to financial planning, community engagement, and governance. Below are three best practices for co-op board members.
- Understand Legal Requirements
Co-op board members should consult with their attorneys to understand the legal requirements surrounding cooperative ownership, landlord-tenant laws, and housing regulations. Staying compliant with local and state regulations is critical to avoiding legal challenges and ensuring the cooperative’s long-term stability. - Foster Transparent Communication
Communication with cooperative members is key. Board members should be transparent about financial decisions, capital projects, and changes to the cooperative’s rules. Clear, consistent communication helps build trust and ensures the co-op community knows its responsibilities. - Screening New Members
Since co-op boards have the authority to approve new members, it’s essential to establish a thorough screening process (ex., financial reviews, interviews, reference checks) that does not run afoul of the law. The legal risks in approving new members in cooperatives include potential claims of discrimination or violation of fair housing laws if the board’s selection process is not transparent and consistent with legal guidelines. Boards must ensure that their criteria for approval are applied fairly to all applicants to avoid potential litigation.
Legal Resource
While cooperatives share similarities with community associations, they also present unique challenges and responsibilities for board members. The cooperative ownership structure requires boards to actively participate in financial management, resident approvals, and compliance with legal requirements. By embracing best practices and fostering strong communication and transparency, co-op board members can work to ensure the long-term success and stability of their communities.
Questions about cooperatives, co-op policies, member screening, or other legal requirements? Do not hesitate to call 855-537-0500 or visit www.ksnlaw.com.
Since 1983, KSN has been a legal resource for cooperatives along with condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.
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