That's Not Really A Condo: Housing Cooperatives in Arizona

By Mark J. Bainbridge

When the words "homeowner association" and HOA are used, they often refer broadly to a wide-range of non-profit corporations that regulate and govern the use of a particular group of properties. These associations are predominately divided into "planned communities", consisting of single family houses, and "condominiums". Both of these types of associations are regulated by specific and unique Arizona laws that are only applicable to them, in addition to the traditional non-profit corporation statutes. But, there are associations that, although considered to be an HOA in the broadest sense, simply are not a planned community or a condominium. This article is about one of them.

One of the most misunderstood of these associations is the housing cooperative or co-op. Thought predominately to be an east coast product, co-ops did make their way west and can be found in areas that experienced growth in the years following World War II, including in parts of Arizona. Co-ops are commonly confused with condominiums, mainly because, from the outside, the two are very similar. Both condominiums and co-ops are typically multi-family dwellings containing a number of individual units. However, a co-op and a condominium are very much different in how they are set up and what is actually owned.

In a condominium, a homeowner has a real property ownership interest in a specific unit and an undivided fractional interest (based on the total number of units) in the common areas. In other words, when purchasing a condominium, the owner obtains record title to a specific unit with a specific legal description, as well as a partial ownership interest in the common areas (i.e. buildings, pool, common land, etc.). The condominium owner's property is subject to recorded CC&Rs, or sometimes a declaration of horizontal property regime, that dictates the owner's use and obligations with regard to the condominium property.

In contrast, the real property in a housing co-op is owned by the corporation itself with each owner acquiring a share in the co-op. The co-op's shareholders are typically bound by an occupancy agreement, which generally defines the owner's occupancy rights and responsibilities. Like a condominium, the co-op is usually a non-profit corporation, but, unlike a condominium, it is not subject to Arizona's Condominium Act. Further, the ownership share in a co-op is personal property as opposed to real property.

Although on their face very similar, the differences between a condominium and housing co-op are pronounced. While each may have its advantages and disadvantages depending on the circumstances, it is critical to know what you are buying and what issues you may face.

Mark J. Bainbridge is the founder of The Bainbridge Law Firm, L.L.C., a real estate and business litigation firm in Phoenix. Ph: 602-274-6369.