Article
Unraveling the Legal Hybrid of Housing Cooperatives
UMKC Law Review
(2015)
Abstract
David Shea is a lonely senior living in Manhattan. Because he does not have a large income, he qualifies for assistance to subsidize his housing costs as a resident in Penn South, a housing cooperative with a decades-long waiting list. Suffering from loneliness and isolation, Mr. Shea rents out the enclosed terrace in his unit to domestic and international travelers on private rental websites. When the housing cooperative board discovered Mr. Shea's rental activity, they moved to evict Mr. Shea arguing that his subletting was a violation of the housing cooperative rules and regulations. The administrative hearing officer who heard his case ruled against Mr. Shea, clearing the path for the housing cooperative to evict Mr. Shea. When he is evicted, Mr. Shea stands to lose not only his subsidized cooperative housing unit that is one of the few places in Manhattan where a low-income senior can afford to live safely and comfortably, he would also lose all of the money he has paid into the housing cooperative to become a member as well as any equity Mr. Shea has accumulated during his tenure. Mr. Shea's plight is not unique. Residents, or members, of housing cooperatives who violate, or are found in violation of the housing cooperative’s rules and regulations are subject to eviction; a consequence some may consider very harsh given the violation5. The member can be evicted from the home where they have lived for years and be stripped of the equity the housing cooperative member has invested into the housing cooperative. These consequences exist whether the member’s violation is for non-payment of housing payments to the housing cooperative or because of some non-financial violation such as subletting the unit6 or refusing to allow inspections7. This forfeiture of equity can occur even when the value of the member’s equity is greater than the amount owed to the housing cooperative. This result occurs partly because courts, housing cooperatives, and state and federal legislatures remain confused about the legal structure of a housing cooperative and the legal protections that should thus flow to housing cooperative members.
Housing cooperatives are a corporation, formed pursuant to state statute, solely for the purpose of owning and operating real property for its residents. The housing cooperative corporation owns multi-family property occupied by members of the housing cooperative. To become a member, residents purchase shares in the cooperative corporation providing them co-ownership in the cooperative corporation, and by extension, co-ownership in the real property owned by the cooperative corporation. In tandem with the purchase of the cooperative share, each resident executes a proprietary lease representing the occupancy agreement between the resident and the cooperative corporation.
The legal hybrid nature of housing cooperatives has made for confusion amongst federal and state courts and federal and state legislatures. It is particularly problematic, and the focus of this Article, when determining the legal process for forcibly terminating the membership of a cooperative resident in an effort to reclaim possession of a terminated member’s unit. This is part of the challenge with the housing cooperative’s efforts to evict Mr. Shea. What should be the legal mechanism for forcibly removing him from the housing cooperative property? Should it be a judicial foreclosure-like process like it is with fee simple ownership? Should it be an eviction process like it is with rental property?
This Article first argues that housing cooperatives are not rental property, but ownership of personal property since the residents own shares in a cooperative corporation. The second issue this Article seeks to evaluate is the process for terminating the defaulted member’s ownership interest, or value in the ownership interest. This Article argues that courts and housing cooperatives should bifurcate the analysis of the cooperative member’s possessory rights to the cooperative unit from the member’s ownership rights to the value of the share. The members’ entire share value should not be forfeited simply by a finding of a breach of the proprietary lease without proof from the housing cooperative of damages suffered.
Part II of the Article introduces the reader to housing cooperatives, their prevalence as an American form of residential housing, and their history. Part III details housing cooperative corporations, their formation, corporate documents and the creation and termination of the housing cooperative membership. Part IV evaluates the conflict in the federal and state courts and legislatures about the legal structure of a housing cooperative. Part V argues that a housing cooperative membership creates ownership of personal property, not solely possession of rental property. Part VI presents the rationale behind court decisions holding housing cooperatives as rental property. Part VII argues that housing cooperatives are not ownership of real property. Part VIII concludes with the argument that housing cooperative membership creates an ownership interest in the cooperative share, the dispossession of which should be bifurcated from the housing cooperative’s action for possession of the housing cooperative unit.
Keywords
- cooperative,
- cooperative corporation,
- housing cooperative,
- coop,
- affordable housing,
- affordable homeownership,
- landlord-tenant,
- real property,
- personal property,
- cooperative share,
- homeownership,
- income inequality
Disciplines
Publication Date
January 15, 2015
Citation Information
Lawton, Julie, Unraveling the Legal Hybrid of Housing Cooperatives (January 15, 2015). 83 UMKC L. Rev. 117 (2015).