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. Even so, there is an estimated 30,000 stock cooperative housing units in California. (National Association of Housing Cooperatives.)

Distinctive Features. Unlike condominium developments where units are individually owned, a stock cooperatives apartments are owned by a corporation. Instead of buying a unit, buyers into a co-op buy shares of stock that give them the right to occupy a particular apartment once they sign an Occupancy Agreement or Proprietary Lease. 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.

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.)

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.