Condominiums ("condos") and cooperatives ("co-ops") are forms of "common interest ownership" in real estate, that is, you and others have some type of ownership interest in a particular piece of land.
Condos and co-ops are often confused with one another because they are quite similar. For example, each gives the owner the right to use certain areas, like pools and roads. But, there are differences between the two, such as the difference between what a condo owner and co-op owner actually "owns."
Owning a condo or co-op can be a good alternative to buying a single-family home, such as low maintenance. But, it could, and usually does, have a downside, such as restricting or limiting your ability to make structural changes to your living space. So, if you're thinking of buying a condo or co-op, you need to some things about what they are and how they work.
What They Are & How They Work
With a condo, you own and hold title to a single "unit." A unit might be an apartment-like space in a building with multiple units, or it could be a unit that stands alone from, but is connected to, another unit, perhaps by a common wall. Usually, you can do anything you want to the inside of your condo unit: paint, install new carpeting, or renovate the kitchen.
You don't own anything outside of your unit, not even the exterior walls.
Common areas of the condo complex are owned by all of the condo owners collectively, and you share them. Common areas include recreation areas, hallways, parking lots, and courtyards. You have the right to use and enjoy the common areas only; you can't make changes to them. So, even if the hallway paint is peeling, you're usually not allowed to repaint it.
Condos are usually managed by a "homeowners'" or "owners" association, which is responsible for making sure the property is well maintained. The association has the power to make assessments, that is, charge the condo owners fees to maintain the property. There are:
- Regular or ordinary assessments, or monthly maintenance fees, which are used to pay for things like road repairs, landscaping services, snow removal from parking lots and roads and insurance for the commons areas or elements of the condominium property
- Special assessments, which usually are levied to pay for expensive, necessary repairs or improvements that were not part of the association's operating budget, such as repairing damage from storms that was not covered by insurance or providing access to a municipal sewer system
Condo owners are usually subject to special covenants, conditions and restrictions ("CC&Rs"), which typically restrict and limit how you can use your property. They are enforced by the homeowners' association. CC&Rs can include things like a ban on pets and having no more than two vehicles in the parking lot.
In most ways, a co-op is similar to a condo, except that co-op residents don't actually own their particular units. Instead, a cooperative entity, which is usually a corporation, owns and holds title to the land and building. The co-op resident owns and holds stock in the cooperative-corporation. The stock gives the resident a lease for a particular unit, which usually can be renewed.
A co-op resident usually can't do anything to the inside of the unit except usual maintenance, like carpet cleaning and maybe re-painting. The co-op resident may not be allowed to make improvements or renovations to his or her unit. All residents have the right, of course, to use and enjoy common areas of the cooperative, like elevators, hallways, and recreational facilities.
Co-ops are managed by a board of directors, which perform the same functions as a "homeowners'" association: the board assesses and collects "monthly maintenance fees," enforces CC&Rs, and keeps the property in good repair. Unlike in condos, however, the board decides who can buy stock and thereby live in the co-op.
Each state has laws that cover enforcement of condo and co-op rights and duties, and each condo and co-op has its own rules as well. Be certain to check those laws and rules before you sign purchase agreement. If necessary, get some help from an experienced real estate law attorney.
Pros & Cons
Condos and co-ops can be advantageous because they're usually less expensive than buying a home, and they're low maintenance: you don't have to paint the outside, cut the grass, or shovel snow. There are other advantages, and disadvantages, to keep in mind:
- Portions of your co-op's monthly maintenance fee, like the parts for property taxes and mortgage interest, are tax deductible, while none of monthly fee for a condo is tax deductible. You can take full tax deductions for property taxes and mortgage interest on your condo.
- A co-op's monthly fee usually is much more than that for a condo.
- There may be restrictions on your ability to rent you condo or to sublet your co-op unit to someone else. It is not uncommon for condominiums and co-ops to prohibit such leases and sub-leases.
- CC&Rs in either a condo or co-op might not make either a good choice for you, especially if you've enjoyed the freedom of making decisions about the upkeep and improvements to your single-family home.
- You can finance the purchase of condo just as you would any other home (like a mortgage), but with a co-op, you'll have to find a lender that's willing to hold your co-op stock as security for your repayment of the loan that you take to buy the stock.
Questions for Your Attorney
- What can happen if I refuse to pay a special assessment?
- If I sublet my condo, am I responsible for any special assessment or is my sub-tenant?
- What can I do if I think a co-op refused to sell me stock because of my religion?
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