Stock Cooperatives
Adams Stirling PLC
Menu

STOCK COOPERATIVES

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 the Housing International Coop, half of all co-ops in the U.S. are in New York City. Even so, there is an estimated 30,000 stock cooperative housing units in California. (National Association of Housing Cooperatives.)

Davis-Stirling CID: There is an inconsistency in the Davis-Stirling Act that resulted from unfortunate drafting. Civil Code §4200 states that a stock cooperated falls under the Act provided all of the following are recorded: a Declaration and parcel map. Developers rarely, if ever, record a declaration since one is not needed for the formation of a stock cooperative. That would seem to keep stock co-ops from falling under the Act. 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.) An owner's interest in the corporation, whether evidenced by a share of stock, a certificate of membership, or otherwise, is deemed to be an interest in a common interest development. (Civ. Code §4190.)

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. 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. Corporation owns common areas.
Maintenance Association maintains common areas via assessments levied on owners. Corporation maintains common areas via carrying charges, also called maintenance fees.
Governance Board of directors elected by the membership. Board of directors elected by the membership.
Transferability Condominiums are easily transferrable and financing is readily available. The transfer of apartments can be sigificantly restricted, and financing is more difficult since loans are secured by shares of stock, which are considered personal property.


Limited Equity Co-Ops. 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 shares held.

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.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.