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Ownership of an apartment unit in which the apartment owner has purchased shares in the corporation (or partnership or trust) that holds title to the entire apartment building. The cooperative owner is, in essence, a shareholder in a corporation whose principal asset is a building. In return for stock in the corporation, the owner receives a proprietary lease granting occupancy of a specific unit in the building. The owner thus occupies under a lease but does not own the unit, and his or her interest is treated as personal property. Each unit owner must pay his or her pro rata share of the corporation’s expenses, which includes any mortgage charges, real estate taxes, maintenance, payroll, and so on. The owner can deduct for tax purposes his or her share of the taxes and interest charges (provided 80 percent of a cooperative’s income is derived from tenant/owner rentals). Note that the stock certificate usually is freely assignable; however, the proprietary lease typically has severe restrictions on its assignability.

Voting power in a co-op is usually one vote per unit. The co-op corporation may take out or assume a single mortgage on the entire building. Coop buyers may have more difficulty in obtaining financing to purchase since they are buying personal, not real property.

Upon resale, the co-op tenant normally must obtain the co-op’s board of directors’ approval of the proposed purchaser or lessee. For example, some boards may object to rock musicians, movie stars, or even ex-presidents.
In a co-op, when an owner (tenant/shareholder) defaults on mortgage or tax payments, the other shareholders must cure the default or risk having the entire project sold for taxes or foreclosed under the blanket mortgage. This contingent liability is one major drawback of co-op ownership. To protect against this risk, many co-ops assess a monthly charge to set up a prepayment reserve fund to cover real property taxes.

When preparing a sales contract involving a co-op, the following language may be used to describe the property: “Ten shares of stock in Paige Apartments, Inc., entitling owner to proprietary use of Apartment 67 and parking stall #3, and co-use of common elements.”
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.