Co-ownership of a Cooperative Apartment

Purchase of a Cooperative Apartment by a Couple

Ms. Ilona and her partner contacted our law firm because they were planning to purchase an apartment together. They had their eye on a two-bedroom cooperative apartment; however, according to the cooperative’s bylaws, only one of them could be registered as a member of the cooperative. Ms. Ilona wanted to know how this situation could be resolved.

It is typical for cooperative housing that it cannot be acquired as joint ownership. Contrary to public perception, however, this option is not prohibited by law. On the contrary , under the law , two or more people may acquire a cooperative apartment as joint property through a contract for the transfer of a cooperative share (or by inheritance or as a gift). The catch is that the Business Corporations Act allows individual housing cooperatives to prohibit co-ownership of cooperative shares. Prohibiting co-ownership of a cooperative share (legally speaking, this does not involve ownership or co-ownership of the cooperative apartment itself, but rather of the share) is only possible through the bylaws of the specific housing cooperative. And this is precisely what many cooperatives do.

The cooperative in the building Ilona had her eye on chose the same approach. Since the couple was planning to get married soon, the simplest solution was to purchase the apartment as a married couple. In this case, the spouses’ joint membership in the housing cooperative arises by law even in cases where the cooperative’s bylaws otherwise exclude joint ownership of a share.

However, if the couple had not planned to marry, another option would have been for only one of them to acquire the cooperative share, while they simultaneously entered into an agreement that would secure the other partner’s rights—for example, in the event of a breakup. Such a solution, however, generally requires the assistance of an attorney.

Cooperative Housing and Co-ownership

As mentioned above, co-ownership of a cooperative share may or may not be permitted, depending on the housing cooperative’s policy.

If the housing cooperative’s bylaws do not contain a provision that excludes co-ownership of a cooperative share, then co-ownership of a cooperative share is permitted. However, caution must be exercised when reviewing the cooperative’s bylaws. A prohibition need not necessarily be worded as follows:“Co-ownership of a share in a housing cooperative is prohibited…,”but may be phrased in a variety of other ways, such as:“A cooperative share may be owned exclusively by a single person….”If you are unsure how to interpret certain provisions of the bylaws, it is advisable to consult an attorney.

For the purposes of managing a cooperative apartment (or cooperative share) that is owned under a co-ownership arrangement, the co-owners must select one of their number to serve as the administrator. The co-owner-administrator then represents the remaining co-owners of the cooperative share in dealings with the cooperative. In practice, this means that they vote at members’ meetings, negotiate with the cooperative’s board of directors, and so on. If a cooperative share held under a co-ownership arrangement is owned by a married couple, each spouse is also an administrator of the cooperative apartment (share).

In the case of significant dispositions involving the cooperative apartment (typically the transfer of a cooperative share, the establishment of a lien, etc.), the consent of all co-owners is required.

Cooperative Housing and Marital Community Property

The community property regime (SJM) can only arise between spouses. If a cooperative housing share is acquired by either one or both spouses during the marriage, it generally becomes part of the spouses’ joint property (unless the spouses have agreed to a different property regime). As noted above, unlike in the case of joint ownership, the bylaws of a housing cooperative cannot exclude the joint property regime. In this case, therefore, ownership of a share by multiple persons is permitted.

However, even during the marriage, it is possible for a cooperative share to be acquired as the sole property of one spouse if it is obtained, for example, through a gift or inheritance.

If you are purchasing a cooperative apartment (or a share in the cooperative) currently occupied by a married couple, it is very important for you to know under which property regime the cooperative share is held, as this fact can have serious legal implications for the validity of the contract for the purchase of a share in the housing cooperative. If you are unsure who actually owns the cooperative share, it is again advisable to consult a lawyer regarding the next steps.

If the cooperative share is owned under the joint marital property regime, each spouse exercises day-to-day management of the share vis-à-vis the cooperative.

As with joint ownership, the consent of both spouses is required for the transfer of a cooperative share and other similar dispositions regarding the apartment.

Please note, however, that if one spouse became a member of a housing cooperative before the marriage, the other spouse does not automatically become a member of the cooperative simply by getting married. This cooperative share remains the exclusive property of the spouse who acquired it before the marriage.

What Happens to a Cooperative Apartment After a Divorce?

In the event of a divorce , the spouses’ joint property ceases to exist upon the divorce decree becoming final. It must then be settled, either by agreement between the former spouses, by a court decision, or—after three years have elapsed —by a legal presumption of settlement.

The division of property may occur either by agreement between both (former) spouses or, if necessary, by a court decision. If the former spouses cannot reach an agreement, the court may decide on the settlement of the cooperative share. The court assesses the circumstances of the specific case; the law does not establish a simple rule that the share automatically goes to the person who actually uses the apartment. If the cooperative share is not settled by agreement or by a court ruling after the divorce, a statutory presumption of settlement applies after three years. However, in the case of a cooperative share, it is also necessary to take into account the provisions governing joint membership of spouses and the bylaws of the specific housing cooperative. 

Inheritance of a Cooperative Apartment

If the owner of a cooperative share dies, the share becomes the subject of probate proceedings. From a legal standpoint, the simplest situation is when there is only one heir. The cooperative share—and thus the right to lease—then passes to that heir. In the case of a cooperative share held as part of the spouses’ joint property, the share automatically passes to the surviving spouse, and this is taken into account during the settlement of the estate.

But what should be done if there are multiple heirs? In such a situation, an agreement takes precedence. If one of the heirs has a greater interest in the apartment and the others are satisfied with other assets from the estate or a cash payment, they may enter into an inheritance agreement to that effect. If such an agreement is not possible—for example, because there are no other assets in the estate and none of the heirs has sufficient funds to pay out the others— an agreement may be reached whereby one of the heirs becomes the acquirer of the share and pays out the other heirs within a certain period, during which the acquirer will sell their cooperative share.

In practice, however, it often happens that the decision on the acceptance of the inheritance results in multiple persons becoming heirs to the cooperative share (typically the decedents’ children), meaning that legal succession in the housing cooperative is not resolved directly in the probate proceedings. If there are multiple heirs, it depends on the cooperative’s bylaws. If the bylaws do not preclude joint ownership of the cooperative share, the heirs may become joint members. If the bylaws preclude joint ownership, it is generally necessary to agree on who will take over the cooperative share and how the others will be compensated; in the event of a dispute, a court may decide.

Summary

With a cooperative apartment, you do not own the apartment itself, but rather a cooperative share, which grants you the right to lease the cooperative apartment. Under certain conditions, this cooperative share may be jointly owned by multiple people, provided that the bylaws of the specific housing cooperative do not prohibit this.

Different rules apply to spouses. If one spouse acquires a cooperative share during the marriage—and it is not, for example, a gift or an inheritance—the share usually becomes part of the spouses’ joint property, and the spouses become joint members of the housing cooperative. However, the mere fact of marriage does not automatically establish joint membership if one spouse acquired the cooperative share before the marriage.

After a divorce, the cooperative share must be settled in the same way as other property in the marital estate—by agreement, by court order, or, after three years, by statutory presumption of settlement. In the event of inheritance, it depends primarily on whether the cooperative share was solely owned by the decedent, part of the spouses’ joint property, or jointly owned by multiple persons, as well as on what the cooperative’s bylaws permit.