A housing cooperative, or co-op, can look a lot like a condominium from the street. The way it is owned and governed is different, though, and those differences affect financing, approval, resale, and renting. Buyers and investors should understand them before an offer is made.
This article is general information and is not legal or financial advice. An attorney or other qualified professional should be consulted.
How a Co-op Is Owned
Cooperatives in Florida are governed by Chapter 719 of the Florida Statutes. Under the definitions in section 719.103, legal title to the property is held by the cooperative association, and each owner holds an ownership interest in the association together with a lease or similar document that grants the right to occupy a particular unit. The statute also states that an interest in a unit is an interest in real property.
In practice, the buyer receives shares or a membership in the association and a long term lease for the unit, rather than a deed to the unit itself. The whole building, including the mortgage on the building if there is one, is owned by the association. For that reason, the financial health of the association matters even more in a co-op than in many condominiums.
How a Co-op Is Run
A co-op is governed by a board of directors elected by the owners, much like a condominium or homeowners association. Rules are adopted by the board and the owners under the cooperative documents, and in many buildings those rules are stricter than in a typical condominium. Restrictions on pets, guests, moving times, renovation contractors, and leasing are common, so the documents should be read before purchase.
Cooperatives are not all alike. Some allow shares to be sold at market price. Others limit resale prices to keep units affordable. The cooperative documents describe the type and any limits that apply.
The Approval Process
Many cooperative documents require board approval before a unit is sold or leased. Applicants are often asked for financial statements, income information, references, and a background check, and an interview may be scheduled. A buyer should expect the process to take time and should assemble the application package carefully.
Approval decisions must comply with fair housing law. Under section 760.23 of the Florida Statutes, it is unlawful to refuse to sell or rent a dwelling, or to discriminate in its terms, because of race, color, national origin, sex, disability, familial status, or religion. Federal law contains similar protections. A board may apply consistent, written financial and screening standards, but those standards should be reviewed by the association's attorney.
Fees for approving a transfer are limited. Under section 719.106, a fee may be charged only if the association is required to approve the transfer and the fee is provided for in the cooperative documents, and it may not exceed $100 per applicant, with spouses and a parent and dependent child treated as one applicant. No fee may be charged for renewing a lease with the same tenant.
Financing and Finances
Because the buyer is not receiving a deed to the unit, financing works differently than a conventional mortgage. Fewer lenders offer cooperative loans, and down payment requirements can be higher. Some cooperatives set their own minimums. The availability of financing should be confirmed early.
Before buying, the following should be reviewed:
- The current budget and the most recent financial statements
- Reserve balances and any planned major repairs
- Any underlying mortgage on the building and its terms
- Recent or pending special assessments
- Minutes from recent board meetings
- Insurance coverage for the building
A well managed co-op with healthy reserves is a much safer purchase than one that is deferring maintenance. More on the risks of underfunding is covered in
consequences of not having cash reserves.
Renting Out a Co-op Unit
Investors should not assume a co-op unit can be rented. Leasing is often restricted by the cooperative documents, and limits may apply to how often, how long, or how soon after purchase a unit may be leased. Tenants may also be required to go through an application and approval process similar to a buyer's. The leasing rules should be read in full, and any questions should be answered in writing by the association, before a purchase is made with rental income in mind.
Help Managing a Cooperative
Board support, financial reporting, and application processing are provided by Condominium Associates for the associations it manages. To talk about your cooperative's needs,
contact us or
request a proposal.
