Co-op buildings are not a new addition to real estate in Washington DC. In fact, there are about 120 co-ops in Washington DC. There are co-op buildings in every section of the city and include many buildings of architectural or historical importance. They range in size from small buildings like those on Porter Street NW and 29th Street NW in Cleveland Park to large multi building complexes like the Westchester and new buildings (relatively speaking) like the Capitol Hill Tower.
In 1920, several rental apartment buildings converted to cooperative ownership with the assistance of Edmund J. Flynn. Since 1920 a number of other buildings have converted to cooperative ownership or they were built and established as cooperatives from the beginning. While New York City has the most coop buildings in the United States, Washington is second. Therefore, it is important to understand the structure of a cooperative building and the benefits and restrictions that go along with them.
Even though coops have been around nearly 100 years they are avoided or misunderstood by many buyers. Simply put, a cooperative is a corporation formed for the purpose of providing housing for its members or owners.
Ownership of a co-operative unit is generally considered an interest in personal property because the co-operative corporation has fee simple title or real property ownership of the entire property. This corporation grants each member or owner the "right" to occupy a unit: herein lies the most significant difference between the co-operative and condominium ownership. One’s ownership interest in the corporation and the right to occupy a unit is considered an ownership interest in personal property and not in real estate. However, the daily operation of co-operatives and condominium associations is quite similar.
The first co-operatives were organized as they still are today, in the form of a corporation which typically holds fee simple title to the entire property. Some co-operatives own the building while leasing the land (ground rent). An example of a coop in Washington with ground rent can be found at 4101 Cathedral. Conceivably, a co-operative corporation could lease a residential building for occupancy by its members.
Membership in the corporation is evidenced by two instruments: a stock certificate and a proprietary lease. Shares of stock are issued to show the value relationship of one unit to the other and to pro-rate the corporate mortgage payment, if any, the operation and maintenance expenses, and the property's real estate taxes. The proprietary lease spells out the relationship between the owner members and the corporation. It contains many of the same clauses that are found in a residential lease but also refers to those special provisions distinguishing an apartment unit owner from a tenant, such as the owner's right to participate in the affairs of the corporation, vote or have the use and enjoyment of the unit indefinitely.
The Charter and By-Laws are the co-op's governing documents which describe the relationship between the individual co-op owners. They include items such as how to elect the board of directs, when to hold annual meetings and how to vote. The Chrter and By-Laws vest in the Board of Directors the authority to run the building and establish policies, approve new buyers, contract for services and develop an operating budget.
Since all the property is actually owned in the name of the corporation, that body is directly repsonsible for the monthly payments of principal and interest on any corporate mortgage indebtedness, the payment of real estate taxes, and for any operating costs such as insurance, salaries for staff and serice contracts. The individual members of the coop have the obligation to pay their proportionate share of the co-op's annual operating budget.
If a member does not pay his pro-rata share of the co-op's budget, the other members are required to pay the deficiency because they are all collectively responsible for the economic well being of the co-op. This is one reason for providing a healthy operating reserve. The co-op then has a lien on each member's Ownership Documents and has the right to sell the defaulting member's apartment unit in order to recover the defaulted payments.
There are some exquisite Old World coop buildings in Washington that are a wonderful place to call home. In fact, co-ops tend to be less expensive than condos of a similar size. If you are actively looking for a new home, you may be looking at co-ops and condos of a similar price, and you might be surprised by what seems to be a high co-op fee.
Before you reject the co-op completely out of hand for its high fee, it is crucial that you examine what is included in the co-op fee and compare it to what is included in the condo's fee. Co-op fees include taxes and insurance. Most co-ops include all utilities in their fees and in many instances an underlying mortgage. The underlying mortgage is deducted from the amount which you will be financing or paying at closing and provides a tax deduction for most buyers. It is really helpful to compare the condo and co-op fee side by side. In most instances, the co-op fee is not as high as it might seem. For more information about the difference between a co-op fee and a condo fee, please read this article.
If you are looking for a new home in DC and would like to see if a co-op is the home for you, just click here to start your search. Then call the Lise Howe Group with your list of properties that you want to see! You need a partner like the Lise Howe Group in your home search - a partner who knows the market, the neighborhoods of DC, and the process of buying and financing a co-op. You need a partner who can help you sort out the great values and real deals from the overpriced listings. Your search is about so much more than bricks and mortar - it is about your future home. Let us find that place that you are going to love. Give us a call today at 240-401-5577 or email us at email@example.com.
If you are considering selling your co-op, then you should hire an agent who understands how to market a co-op.