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Condos VS Co-Ops: What's the Difference?

By Barbara Strapp Nelson

People commonly think of home ownership in the form of owning a single family house situated on its own parcel of land.  However, increasingly, condominiums, and to a lesser extent, co-operatives, are providing  alternative forms of home ownership.  What are these forms of ownership and what is the difference between them?

In New Jersey, condominium ownership is no longer unusual.  It is a form of common ownership in which title to individual units vests in each unit's owner.  In addition, each unit owner also owns a percentage interest in the common areas which are shared by the unit owners, e.g.,  the land, building exteriors and any facilities for the unit owners' common use.  Descriptions of both the individual units as well as the common areas are set forth in a Master Deed which is recorded in the County Clerk's Office in the county where the condominium is situated.  Thus, condo owners own their unit plus a percentage interest in the condominium's common areas. 

Co-operatives appear  more prevalent in New York City and North Jersey than Central Jersey. In this form of common ownership, the owner's interest in an individual unit is held in the form of a leasehold interest.  The individual owner acquires a proprietary lease to his/her unit.  In addition, each unit 'owner' owns shares of stock in the co-operative corporation which owns the underlying land and improvements on the land as well as those facilities intended for the common use of the owners of the co-operatives.  Co-op owners have a leasehold interest in their unit and their only ownership rights to the common areas are through ownership of  shares of stock in the co-op corporation which owns the common areas.

Condos  are managed  by  unit owners associations which manage the improvements for which they are responsible, i.e.,  the land and the common purpose facilities. Some co-ops are similarly  managed by associations.  In others, the co-operative corporation itself manages the land, and improvements it owns.  Both condo and co-op forms of ownership generally charge the owners of their units a monthly maintenance fee.   In condominiums, real estate taxes are assessed against the individual owners.  In co-operatives, however, real estate  taxes are assessed against the co-operative corporation, not the individual owners. 

Financing a condominium can be accomplished in the same manner as any other fee simple purchase, by mortgaging the unit owner's interest in the unit.  However, since a co-op owner has a leasehold interest in his unit, lending institutions generally  require a pledge of the unit owner's stock and an assignment of the leasehold interest as collateral.  Some lenders, however, now provide a leasehold mortgage.  For certain co-operatives created prior to 1988, financing may be difficult to obtain.

Condominium ownership is a form of ownership created by statute, and did not exist before 1970 when the Condominium Act, N.J.S.A. 46: 8B-1 et seq. was enacted in New Jersey.   Co-operative ownership was originally created in New Jersey under common law.  However, the Co-Operative Recording Act of New Jersey, N.J.S.A. 46:8D-1 et. seq. effective May 9, 1988 provided a statutory basis for the creation of co-operatives.  Pursuant to the 1988 law, a Master Declaration and Master Register of Units is recorded in the County Clerk's Office to create the co-operative.  Unit transfers are accomplished by recording the proprietary lease or assignment of the lease.  Co-operatives in existence prior to the effective date of the Co-Operative Recording Act are not subject to these statutory provisions. 

Full post as published by New Jersey Law Blog on February 11, 2010 (boomark / email).