Adams Stirling PLC


A stock cooperative is the earliest form of common interest development and is found predominantly on the East Coast of the United States. According to the Housing International Coop, half of all co-ops in the U.S. are in New York City. Even so, there are an estimated 30,000 stock cooperative housing units in California. (National Association of Housing Cooperatives.) It is one of the four legal structures recognized by the Davis-Stirling Act.

Davis-Stirling CID: There is an inconsistency in the Davis-Stirling Act that resulted from unfortunate drafting. Civil Code § 4200 states that a stock cooperative falls under the Act provided all of the following are recorded: a Declaration and parcel map. Developers rarely record a declaration since one is not needed to form a stock cooperative. That would seem to prevent the Act from regulating stock co-ops. However, stock cooperatives are specifically identified as one of the four forms of common interest developments subject to the Davis-Stirling Act. (Civ. Code § 4100.) A stock cooperative is defined as follows:

“Stock cooperative” means a development in which a corporation is formed or availed of, primarily for the purpose of holding title to, either in fee simple or for a term of years, improved real property, and all or substantially all of the shareholders of the corporation receive a right of exclusive occupancy in a portion of the real property, title to which is held by the corporation. The owners’ interest in the corporation, whether evidenced by a share of stock, a certificate of membership, or otherwise, shall be deemed to be an interest in a common interest development and a real estate development for purposes of subdivision (f) of Section 25100 of the Corporations Code. (Civ. Code § 4190(a).)

Stock Certificate. An owner's interest in the corporation is evidenced by shares of stock or a certificate of membership. If the person borrowed money from a bank to purchase the shares of stock, the shares are normally held by the bank as collateral for the loan. 

Bylaws. As with any corporations, stock co-ops have bylaws, which describe how the corporation is governed, the number of directors, their term of office, etc. Co-op bylaws sometimes contain house rules, but those are most often found in the proprietary lease.

Proprietary Lease (Occupancy Agreement). Once a person purchases stock and becomes an owner, they have the right to occupy an "apartment" owned by the corporation. This is accomplished by means of a proprietary lease, sometimes called an occupancy agreement. A proprietary lease is different from a regular lease because it is specific to co-ops. Unlike a regular lease, which gives a tenant the right to occupy a residence for a specified period of time, a proprietary lease gives a tenant the right to occupy a unit for as long as they own shares in the corporation. A proprietary lease contains "house rules" and the person's obligation to pay "rent" to the corporation, also referred to as "dues" or "maintenance charges." The lease will contain the following:

  • Who can occupy the unit
  • Whether or not the unit can be sublet
  • Who is responsible for what types of repairs
  • How the shareholder may sell their shares
  • What constitutes a default on the lease
  • Terms and conditions for the co-op to terminate the lease

Distinctive Features. Unlike condominium developments where units are individually owned, a stock cooperative's apartments are owned by a corporation. Because the arrangement is more akin to a landlord-tenant situation, the corporation's board of directors can screen buyers to determine if they are financially stable enough to buy into the development.

  Condominiums Stock Cooperative
Units Members purchase units. The corporation owns units, tenants purchase shares of stock in the corporation, and lease units under a proprietary lease or occupancy agreement.
Common areas Members own an undivided fractional interest in common areas. The corporation owns common areas.
Maintenance Association maintains common areas via assessments levied on owners. The corporation maintains common areas via carrying charges, also called maintenance fees.
Governance Board of directors elected by the membership. Board of directors elected by shareholders.
Transferability Condominiums are easily transferable and financing is readily available. The transfer of apartments can be significantly restricted, and financing is more difficult since loans are secured by shares of stock, which are considered personal property.

Limited Equity Co-Ops. LECs are intended for low- and moderate-income families. Limited-equity cooperatives typically have 30- to 40-year low-interest mortgages from the U.S. Department of Housing and Urban Development (HUD) with price restrictions imposed by HUD. As such, HUD properties pay below-market-rate property taxes based on the co-op’s operating expenses rather than the market-rate value of the property.

Market Rate Co-Ops. Directed toward middle- to high-income households. Shares of stock are sold at market value. Voting is often based on the number of shares held.

Mobilehome Park Cooperatives. Mobilehome parks that are cooperatives are regulated by the Mobilehome Residency Law. (“MRL”) The MRL regulates parks with and without a recorded declaration differently. In general, the MRL provides more protections to members and residents of resident-owned mobilehome parks, such as cooperatives, without a recorded declaration. Civ. Code § 799.1

California Law Revision Commission. In a January 23, 2020 Staff Memorandum, the California Law Revision Commission published the following background information about stock cooperatives:

A stock cooperative is a real property development in which title to the development is held by a corporation. Ownership of a share of that corporation entitles the shareholder to exclusively occupy a unit within the development. The purchase of a share is generally implemented through a sales contract, with ownership evidenced by a memorandum of lease or membership document. There are estimated to be around 30,000 stock cooperative housing units in California. The two primary types of stock cooperatives are the “market rate” cooperative, in which a share is bought and sold for market price, and the limited equity housing cooperative (LEHC), in which the sales price of the share is artificially restricted in order to provide for long-term affordable housing. LEHCs are typically income-restricted, and many stock cooperatives are age-restricted. In a stock cooperative, the ability to transfer a share can be significantly restricted.

Collection Actions. Assessment collection in stock cooperatives is a little confusing because members own shares of stock rather than title to a particular unit. The Davis-Stirling Act provides for the collection of delinquent assessments from the owners of separate interests, which includes shareholders in cooperatives. The delinquent assessments of shareholders apply to their units (separate interests). As such, a lien can be filed against their unit and foreclosed if assessments remain unpaid. The legal description of the unit should include the legal description of the entire property plus a reference to the shareholder’s share certificate, occupancy agreement, proprietary lease, or any other document giving the owner exclusive use of a certain unit. And to the extent that any interest in the unit is evidenced by personal property, i.e. shares of stock, such property will be included in the foreclosure sale.

Related Information. See related information about community associations: 

Additional Information

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