Co-Operatives and how they differ from Condominiums

I. Ownership vs. Possession

Co-operatives, like Condominiums involve buildings with numerous units; their legal organization, however, differs from that of condominiums.

In a co-operative, a corporate entity owns the lands and structures thereon including each of the individual units in the building. A purchaser in a co-operative buys shares in the corporation, whereas a purchaser in a condominium purchases and is deeded a specific dwelling or condo unit. Accordingly, while a condo owner truly owns legal title to the unit, the occupied legal interest of an individual occupying a co-op unit is that of a shareholder of the corporation that owns the property, making the said individual a shareholder with rights of possession as opposed to an owner.

II. Governing Constitution

Condominiums are governed by the Condo Declaration, the Rules and Regulations, By-laws, etc. Similarly, the rights, duties and liabilities of an occupant shareholder in a co-operative are governed by the following documents:

– The incorporating and constating documents of the corporation;

– The by-laws of the corporation; and

– Where applicable, a shareholders’ agreement among the tenant shareholders.

A fundamental difference, however, is that Condominiums are subject to the Condominium Act whereas the Condominium Act does not apply to Co-operatives.

III. Mortgages & Taxes

In Condominiums, each owner obtains individual mortgage financing and pays for property taxes assessed against the unit itself, whereas with co- ops mortgage financing is primarily secured for the building as a whole, and is referred to as a “blanket mortgage” with the corporate owner as the mortgagor. Each occupant-shareholder, in turn, contributes a proportionate share towards the blanket mortgage. As a consequence, in the event that an occupant-shareholder is in default, the other occupant-shareholders must increase their payments in order to not risk foreclosure or power of sale proceedings against the building. As far as property taxes are concerned, there is one (1) tax bill which applies to the entire co-op building and all occupant-shareholders are jointly liable under the tax bill. The proportionate share which each shareholder is required to pay towards mortgage and property taxes is calculated by the number of shares each shareholder owns. The number of shares owned is determined by the size of the unit and when the shares were originally purchased.

IV. Considerations on Sale

Condo owners are free to market and sell their condo units without regard to the condo corporation or fellow condo unit owners. Co-operatives, however, require that shares be sold and the purchaser of those shares will have to be approved by the corporation’s board of directors before acquiring shares in the corporation. The marketing of any shares to be sold furthermore requires compliance with the Securities Act (Ontario) due to the fact that, it is a sale of shares to the public and not merely the sale of real property. Finally, despite the fact that ownership in land does not change hands, land transfer tax is all the same exigible on the sale price of the shares. For obvious reasons then, the co-op is not a particularly attractive alternative to condo ownership although co-op pricing tends to be more affordable than condos. That said, there are important considerations when selecting a lawyer to conclude on a purchase of a co-op transaction. First, not all real estate lawyers close co-op transactions, whether because such transactions are foreign or because of the sometimes added complexity of the co-op transaction. Second, since not all real estate lawyers service co-op purchases, it is especially important to establish the costs ahead of retaining legal counsel as some lawyers who do close co-op purchase transactions tend to charge higher fees given the few lawyers competing for such business.