Co-ops C101ooperative Housing Ownership in Washington, DC ACKNOWLEDGMENTS fff Much of the information in this document has been drawn from a pub- lication entitled Co-operatively Speaking, prepared and distributed by the Edmund J. Flynn Company, Washington, D.C., co-op specialists since 1920. That publication is an excellent resource for additional, de- tailed information and may be obtained from them at edmundjflynn.com. This document was prepared by members of the DC Cooperative Housing Coalition Board of Directors: Arthur Leabman (1870 Wyoming Avenue, NW, Inc.) — committee chair, Stephen McKevitt (The Beverly Court Coopera- tive, Inc.), Paul St. Hilaire (Tiber Island Cooperative Homes, Inc.), and Sue Stephens (The Porter, Inc.). Other members of the Coalition Board of Di- rectors were Fred Dyda (Tilden Gardens, Inc.), Carl Gerber (The Cathedral Avenue Cooperative, Inc.) — President of the Coalition, Jill Golden (3028 Porter Street, NW, Inc. ), Mike O’Dell (Harbour Square Owners, Inc.), Ray Olson (River Park Mutual Homes, Inc.), Russ Rader (Westmoreland Coop- erative), Nancy Skinkle (Broadmoor Cooperative Apartments, Inc.), and JoAnn Wells (Potomac Plaza Apartments Cooperative, Inc.). Photographs of just a few of Washington’s many cooperatives are included in this document. They are indicative, however, of a wide range in size, struc- ture, location, and architectural style. ON THE COVER The Ontario f 2853 Ontario Road, NW f 120 units Watergate East part of the Watergate complex f 2500 Virginia Avenue, NW f 231 units 3020 Tilden Street, NW f 20 units Ponce de Leon f 4514 Connecticut Avenue, NW f 52 units Harbour Square f 500 N Street, SW f 447 units 3024 Porter, 1925 Cooperative housing ownership in Washington, D.C. In 1920, several rental apartment buildings in Washington, D.C., converted to cooperative ownership. Since then, many others either have converted to cooperative ownership or were built and formed as cooperatives at the start. Washington is second only to New York City in the concentration of this type of home ownership. Cooperatives are located throughout the city and include many buildings of historical and architectural significance. They range in size from some as small as four units to others numbering in the hundreds. They also vary in the type of structures and number of buildings which they may include. 1 Some cooperatives are contained within a single, multiple-unit building; others include any number of buildings. More- over, cooperatives may include a variety of structures, e.g., high-rise apartment buildings, garden-style apartments, town houses, and detached houses. Despite their popularity and long his- tory in Washington, cooperatives are not always well understood as a form of residential home ownership; nor is there always a clear understanding of how they differ from condominiums. This document has been prepared to provide a brief overview of cooperatives and should be of interest to several dif- ferent audiences: f Persons considering the purchase of a cooperative unit f Real estate agents involved in the sale The Presidential 1026 16th Street, NW and purchase of cooperative units 44 units f Owners of cooperative units f Cooperative Boards of Directors f Persons involved in the operation and management of cooperatives f Loan officers involved in financing cooperative units 2 f DC Co-ops 101 The overview is intended to address several fundamental questions: f How does ownership in a cooperative differ from condominium ownership? f How do cooperatives operate? f What is included in a cooperative’s monthly fees and assessments? f What is involved in purchasing a cooperative unit? f What kind of financing is available? f What is the role of the cooperative’s Board of Directors? f What is involved in settlement and transfer of cooperative ownership? f What are some specific benefits of owning and living in a cooperative unit? f What are some common misconceptions about cooperatives? Potomac Plaza Apartments 2475 Virginia Avenue, NW 274 units 3 How cooperative ownership differs from condominium ownership A housing cooperative is a form of ownership in which a person purchases shares of stock, or some other form of membership, in a corporation that was specifically formed for the purpose of providing its members a place to live. How is this form of ownership different from condominium ownership? A basic difference is that while ownership of a con- dominium unit constitutes direct ownership of real property, ownership in a cooperative constitutes a share of ownership in a corporation. It is the corporation that has ownership (fee simple title) of the entire property (building/s and land). The ownership interest of the members in their own residence is an ownership in personal property. The specific instrument of ownership varies among different cooperatives. Some cooperatives issue shares of stock and a proprietary lease. Others do not issue stock but instead offer some form of ownership contract. In either case, the purchaser becomes a member of the cooperative and, as such, gains ex- clusive occupancy rights to a particular unit, as well as the use and enjoyment of the cooperative’s common elements. Condominium ownership, in contrast, combines real property (fee simple) ownership of an individual condominium unit with an undivided interest, as “tenants in common,” in all the common areas and facilities of the association (e.g., land, hall- ways, basement areas, pools, roof decks, etc.). Each unit own- er’s interest in the common areas and elements is undivided and indistinguishable from any other unit owner’s interest. 4 f DC Co-ops 101 OWNERSHIP Cooperative Condominium The corporation owns the entire Each unit is separately titled cooperative property. and owned by the individual owner(s). Members own a proportionate Common areas and facilities are share in the corporation and thus owned collectively by unit owners have occupancy rights to as tenants in common, with each a particular unit. unit owner having an undivided interest. Another major difference between cooperatives and condominiums is how real estate taxes are assessed and paid. For cooperatives, taxes are as- sessed on the entire cooperative as a whole, not on individual units. The tax is paid by the corporation but the proportionate share for each unit is passed on to the individual unit owner as part of the monthly fees. For con- dominiums, the local government assesses and bills each unit individually, and unit owners pay the assessed tax directly to the government. REAL ESTATE TAXES Cooperative Condominium The real estate tax on the The real estate tax on each entire cooperative is paid by the individual condominium unit corporation. Members pay their and its undivided interest in proportionate share as part of the common elements is paid the cooperative’s monthly directly by each unit owner to the assessment fees. taxing agency. It is not included as part of the condominium association’s monthly fees. 5 Governing documents A cooperative is governed by its Certificate or Articles of Incorporation, Bylaws, and House Rules. As provided in the Bylaws, there is an annual meeting at which the membership elects members to serve on the Board of Directors. The an- nual meeting also provides an opportunity for members to dis- cuss and, when required, to vote upon various financial and other matters. In addition, cooperatives may sometimes hold special meetings called either by the Board of Directors or by the membership at large to address specific concerns that may arise. Unlike cooperatives, condominium associations are not incor- porated but are created by a declaration. Like cooperatives, however, they are also governed by a set of Bylaws as well as various rules and regulations established by the condomin- ium association. GOVERNING DOCUMENTS Cooperative Condominium Articles of Incorporation Declaration Bylaws Bylaws House Rules Rules and Regulations Proprietary/Ownership Property Deed for documents individual unit 6 f DC Co-ops 101 How cooperatives operate Despite differences in the form of ownership and how real estate taxes are assessed and paid, the day-to-day operation of cooperatives and condo- minium associations are similar in many ways. The cooperative’s Board of Directors is charged with directing the op- eration and business affairs of the cooperative. For instance, the Board adopts an annual budget to meet the estimated expenses for the coming year, including the real estate taxes which are assessed on the entire coop- erative. The Board also has the authority to establish, amend, and enforce the cooperative’s House Rules that, together with the Bylaws and the Pro- prietary Lease or other Ownership Documents, govern a member’s use and occupancy of the property. Although some cooperatives may be entirely self-managed, many, if not most, contract with a property management firm or in-house professional manager to handle such matters as maintenance and repair of the com- mon property, hiring and supervision of staff (e.g., desk staff and custodial staff), collecting monthly assessments or other fees due to the coopera- tive, paying bills, etc. In addition to participating and voting in annual and special meetings, electing persons to the Board of Directors, and serving on the Board (if elected), members of the cooperative can participate in its opera- tion of the cooperative in other ways, such as serving on standing or ad hoc committees. 7 Fees & assessments Monthly assessment fees for each cooperative unit are calcu- lated to cover that unit’s proportionate share of the coopera- tive’s expenses, as based on the number of shares of stock or the percentage of ownership otherwise associated with that unit. These shares or percentages are set at the time the co- operative is established and remain fixed. Included in monthly fees are costs for operating and maintaining the cooperative, management company fees, the cooperative association’s in- surance, underlying mortgage (if any), contributions to re- serves, and real estate taxes.