|
|
|
|
Legal Line® provides Free legal information to Canadians through its website, telephone and fax-on-demand systems.
1,000 topics are covered within 35 areas of law...
Search...
Ontario|Real Estate LawCondominiums 416 Co-Operatives & Co-ownerships Co-operatives and Co-ownerships are 2 forms of housing which are different from Condominiums. Although co-operatives and co-ownerships involve buildings with several units, their legal organization is different from that of condominiums.
- Co-operatives
In a co-operative, a corporation owns the land and the building, including all the units. Each purchaser in a co-operative buys shares in the corporation as opposed to buying a specific unit. Purchasers in a co-operative do not own their units but are given the right to occupy them by the corporation. Thus, the legal interest of the co-operative dweller is that of a shareholder of the corporation that owns the property. This is why the co-operative dweller is often referred to as a tenant-shareholder. The legal interest of the tenant-shareholder is different from that of the condominium owner who has a fee simple interest in his or her particular condominium unit.
The rights, duties and liabilities of a tenant-shareholder in a co-operative are governed by the following documents:
1. the incorporating documents of the corporation,
2. the by-laws of the corporation and,
3. where applicable, a shareholders' agreement among the tenant-shareholders.
The Condominium Act does not apply to co-operatives.
- Co-operatives: Mortgages & Taxes
Since the units are not owned by the individual tenant-shareholders, mortgage financing is initially secured for the building as a whole, and is often referred to as a "blanket mortgage". In this situation, the corporation is usually the mortgagor.
Each tenant-shareholder contributes towards the blanket mortgage, and if one tenant-shareholder is in default, the others must increase their payments in order to meet the deficiency or risk a foreclosure or power of sale proceedings against the whole building. After the co-operatives have been in existence for some time, there is often no financing at all remaining on the building.
There is one tax bill, which applies to the entire property, and all tenant-shareholders are jointly liable under the tax bill.
The amount that each tenant-shareholder has to pay for mortgage and tax is based on the number of shares each one purchases. The number of shares they each purchase is determined by the size of the unit each wants to live in and when the shares were purchased.
- Selling shares of a co-operative
If an individual wants to sell his or her shares in a co-operative, it is much different from a condominium owner selling his or her unit. In a co-operative the new purchaser will have to be approved by the board of directors of the corporation prior to acquiring shares in the corporation. With the sale of a condominium, the unit owner is generally free to sell his or her unit to a prospective purchaser without consulting fellow unit owners or the condominium corporation.
Unlike the sale of units in condominium corporations, the marketing of an interest in a co-operative to the public requires compliance with the Securities Act (Ontario) because it is a sale of shares as compared to a sale of real property. Although no interest in real property is being transferred when an interest in a co-operative is sold, land transfer tax is payable on the sale price of the shares.
- Co-ownerships
An alternative to co-operatives and condominiums is co-ownerships. This method of selling interests in property was more popular in Ontario before the Rental Housing Protection Act became effective in 1986, which was replaced by the Tenant Protection Act in 1997. In a co-ownership situation, each person who wanted to live in a building bought an ownership interest in the real property, becoming an "owner in common" with every other purchaser. Instead of owning a particular unit, the purchaser would have the right to lease a particular unit for 21 years less a day, with the understanding that at the end of that time a new lease would be granted by the other co-owners.
In the co-ownership system the buyers were legally bound by the terms in their contract rather than by any legislative provisions. Like the co-operative, the co-ownership involves only one mortgage and one tax bill for the entire property, with each person being responsible for his or her proportionate share of the costs.
- Conclusion
It should be noted that with co-operatives and co-ownerships it can be difficult to arrange individual financing to assist a purchaser in the acquisition of an interest in these types of projects. It is not uncommon therefore for the vendor to finance the purchase by way of a vendor take back mortgage.
As forms of housing, the co-operative and the co-ownership have not been widely accepted in Ontario as alternatives to the condominium because of the more complicated legal issues involved.
For legal assistance with the purchase or sale of a co-operative or a co-ownership interest, you should consult a lawyer.
|