Housing cooperative

Key Takeaways

• In Washington a cooperative is a common interest community in which an association owns the real estate and each member holds an ownership interest plus a proprietary lease to one unit.
• A cooperative member's interest is personal property unless the declaration states that it is real estate for all purposes, under RCW 64.90.020.
• In a condominium each unit is a separate parcel of real estate that must be separately taxed and assessed. In a cooperative the association holds the real estate.
• The proprietary lease is the document that gives a cooperative member the exclusive right to occupy a specific unit.

What It Means

A housing cooperative is a way of owning a home that puts an organization between the resident and the land. The association, usually set up as a corporation, owns the building and the ground under it. A resident buys an ownership interest in that association rather than a parcel of real estate, and the interest comes with a proprietary lease that gives the member the exclusive right to occupy one unit.

The practical effect is that a co-op member is an owner and a tenant at the same time. As an owner, the member holds a stake in the association that controls the property. As a tenant, the member's right to occupy comes from that proprietary lease, so it is the lease, not a deed, that spells out how the unit may be used and how the interest may be transferred. Compare a Condominium, where the buyer takes recorded title to the unit itself and the shared areas are common elements. The two look identical from the sidewalk. Legally they are different animals, and the difference surfaces in taxes, financing, and paperwork. Estates in land is a useful refresher on why the form of ownership drives all of it.

How It Works in Washington

Washington houses cooperatives inside the Uniform Common Interest Ownership Act. RCW 64.90.010 defines a cooperative as a common interest community in which the real estate is owned by an association, each member of which is entitled by virtue of the member's ownership interest in the association and by a proprietary lease to exclusive possession of a unit. Notice the two words the statute insists on: association, which is broader than corporation, and proprietary lease, which is the instrument that hands a member the unit.

The consequence lives in RCW 64.90.020. Subsection (1) says that in a cooperative, unless the declaration provides that a unit owner's interest in a unit and its allocated interests is real estate for all purposes, that interest is personal property. Subsection (2) says the reverse for a condominium: once there is a unit owner other than the declarant, each unit together with its interest in the common elements is for all purposes a separate parcel of real estate, and each must be separately taxed and assessed. So the first question on any Washington co-op file is what the declaration says, because that answer decides whether your client is acquiring Real Property or Personal Property.

Example

Grace Lindqvist buys into the Alder Court cooperative in Seattle. The association owns the twelve-unit building outright, and Grace pays $310,000 for an ownership interest that carries a proprietary lease to unit 7. She receives no deed, and no recorded document at the county names her as the owner of a parcel. Her monthly carrying charge of $890 covers her share of the association's property taxes, insurance, and maintenance, because the county assesses the whole building to the association. When Grace reads the declaration, it does not say her interest is real estate for all purposes, so under RCW 64.90.020(1) her interest is personal property. Her friend across the street bought a $310,000 condominium the same month, received a recorded deed to the unit, and gets a separate property tax bill in her own name. Same price, same city, two different forms of ownership.

Common Mistakes and Exam Traps

• A cooperative member does not own real estate. The association owns it, and the member holds an interest in the association plus a proprietary lease.
• Condominium and cooperative are not synonyms. A condominium unit is a separate parcel of real estate that must be separately taxed. A cooperative unit is not.
• The personal property rule has an escape hatch. A cooperative's declaration can state that the member's interest is real estate for all purposes, and then it is.
• The document that gives a cooperative member the right to occupy is a proprietary lease, not a deed and not a share certificate on its own.