How Do Co-Ops Work in Real Estate?

How Do Co-Ops Work in Real Estate?
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Cooperative apartments, or co-ops, are significantly different from other types of real estate. While ownership of a condo or single-family home involves a claim to real estate through a title or a deed, co-op ownership involves purchasing shares of stock in a cooperative apartment corporation and a proprietary lease for the specific apartment. Instead of owning real property, a co-op apartment owner is a shareholder in an apartment corporation. Her ownership is represented by a stock certificate and a proprietary lease rather than a deed.

Board of Directors

As with any corporation, a co-op has a board of directors. The board is elected by the shareholders which, in the case of a co-op, are owners of apartments in the building. As such, the board of directors will also be made up of apartment owners. The board functions like a board of any corporation and will typically consist of a president, vice president, treasurer and secretary. They will be responsible for running the co-op corporation's operation, financials, rule enforcement and many other tasks.

Board Consent

One unique aspect of a co-op is the restriction on who may purchase and occupy an apartment owned by the corporation. While few restrictions are placed on purchasing a condo and no restrictions placed on purchasing a single family home, a potential buyer of a co-op must seek and obtain the consent of the board of directors to purchase a unit in the building.

Maintenance Charges

An owner of a single family residence pays real estate taxes. An owner of a condo pays real estate taxes and monthly common charges . Owners of a co-op apartment do not pay real estate taxes because in the eyes of the law they own personal property in the form of shares of stock in the co-op corporation. However, the co-op apartment owner will be required to pay a monthly maintenance charge which is a set fee subject to be increased by resolution of the board of directors. This fee is placed into the co-op's account and is used for anything from general upkeep to repairs or capital improvements.

Title Insurance

Purchasers of real estate generally also purchase title insurance. Ownership of a co-op apartment is not technically ownership of real estate, so there is no title insurance to purchase. However, a co-op purchaser does have the option to buy leasehold title insurance that insures the potential owner's interest created by the proprietary lease. Leasehold title insurance typically provides protection from any previously undiscovered liens affecting the co-op apartment.