Are you considering buying a condominium? Do you want to learn the basic differences between privately owned and cooperative housing and what are the requirements associated with cooperative housing?
In addition to privately owned flats owned by a specific individual or legal entity, cooperative flats can also be found on the real estate market.
Co-operative flats are not the property of specific individuals, but usually the property of a housing cooperative. Thus, a person living in a cooperative apartment is not directly the owner of the apartment, but a special kind of tenant. In the case of the purchase of a cooperative apartment, the subject of the transfer is a cooperative share in the housing cooperative, from which the owner of the share derives certain membership rights, usually in particular the right to rent a particular apartment (this right, however, may not always be linked to the share). Thus, the transfer of the ownership right to the cooperative share does not change the ownership right to the housing unit, which remains the property of the cooperative.
Thus, there are no changes in the Land Registry in connection with the transfer of the cooperative share. A contract on the transfer of the cooperative share is concluded between the transferor and the transferee. The legal effects of the transfer of the cooperative share do not take effect until the date of delivery of the transfer agreement to the housing cooperative. If you do not want to submit a contract containing the financial details of the transaction to the housing association, it is possible to split the contract into two parts and submit only the part that only provides for the transfer of the ownership of the share without specifying the purchase price to the housing association. When transferring a condominium share , we also recommend that you pay the purchase price through escrow to ensure that the contract becomes effective and is duly delivered to the condominium within the specified time period.
In the context of the transfer, it is also necessary to get acquainted with the concept of annuity, i.e. the unpaid part of the so-called additional membership deposit. This amount is most often incurred in connection with the renovation or construction of the apartment building and is actually a debt that the housing cooperative repays through its members. As part of the transfer of the cooperative share, the annuity must also be settled and the obligation to repay it passes to the purchaser of the cooperative share. When acquiring a cooperative housing unit, it is therefore necessary to find out the amount of any annuity, how much the regular payments are, at what intervals they are paid and when they will be repaid.
Before buying a cooperative share, we recommend that you thoroughly examine the housing cooperative and its statutes. They may set out conditions regarding the transfer of the share (e.g. that the share cannot be acquired in co-ownership or that only a natural person, not a legal person, can acquire ownership of the share). The statutes may also lay down the conditions under which a member’s right to rent an apartment arises or, in addition to the law, lay down the conditions for expulsion of a member of the cooperative in the event of a breach of membership obligations. In this context, it should be borne in mind that in the event of expulsion from the cooperative, the owner of the share loses the right to rent the apartment and the possibility of continuing to live in the apartment.
If the purchaser is acquiring the apartment as an investment, it is also necessary to check whether the housing association will agree to sublet the apartment to another person. Therefore, if the apartment is being acquired for rental purposes, this should be verified before the transaction takes place. In the absence of consent, the flat cannot be rented out.
However, the statutes may also contain other conditions of use or prohibitions related to the apartment. We therefore strongly recommend that you study the statutes of a particular housing cooperative and evaluate the risks mentioned before concluding a share transfer agreement.
In the case of the purchase of cooperative housing, we can provide you with comprehensive legal services, from the examination of the housing cooperative and its statutes to setting the terms of the transaction, including the settlement of the annuity and the escrow of the purchase price.
If you would like more information in this regard, please do not hesitate to contact us.
This article is for informational purposes only and does not constitute legal advice or guidance for any particular case.