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Assisting With the Purchase and Sale of Cooperative Properties

Acting for buyers or sellers of cooperative properties can be a more difficult task than acting for buyers or sellers of “ordinary” houses. The majority of real estate bought and sold in BC is fee simple. However, there are a number of properties that have a different legal structure and therefore require that different questions be asked. One of those types of properties is the cooperative, of which there are different kinds. This article deals only with cooperatives where the purchaser acquires an equity interest in the cooperative itself, currently created by incorporation of an entity under the Cooperative Association Act, not with government or non-profit cooperatives.

When a purchaser “buys” a cooperative unit, instead of buying the land or the building, the purchaser buys shares in the cooperative that either leases or owns the land and building, and the right to occupy a particular unit for a set period of time. The cooperative determines how many shares will be allocated to each unit in the building—usually in proportion to the value of the unit. Then the shares are offered for sale.
Some issues to consider:

Financing and Monthly Payments

Financing for a cooperative unit may be more difficult to obtain than financing for an ordinary house. The purchaser will not be granting a first mortgage of a fee simple—security well-recognized by financial institutions—and instead will pledge shares and probably grant a mortgage of leasehold interest.
Cooperative’s Financial Condition
Purchasers should be advised that a cooperative has no statutory obligation to disclose its complete financial condition to third parties. However, the cooperative is required to keep its registers of debentures, indebtedness and allotments available for public viewing, and whether a receiver has been appointed. This can provide some insight into the cooperative’s financial state.
Cooperatives make their purchaser eligibility requirements public primarily through their rules. But, because the sale is “privately” approved by the cooperative’s board of directors, approval is not automatic even if the purchaser conforms to the rules.
In BC, cooperatives must adhere to the Human Rights Code, which states that people must not be denied the opportunity to purchase a “dwelling unit” because of their “race, colour, ancestry, place of origin, religion, marital status, physical or mental disability, sexualorientation or sex of that person.”
Lease, Memorandum and Rules
REALTORS® should obtain a copy of the lease, memorandum and rules and policies of the cooperative and provide them to prospective purchasers. Special attention should be given to rules respecting termination of membership, especially “material conditions.” Maintenance, repair and improvement obligations may beextensive and differ from those of strata developments.

The above is not a complete list of investigations that should be made, but is merely intended to provide a better understanding of the underlying structure.