Condo or co-op?

A handsome red-brick heritage building in the Golden Triangle, 320 Waverley St pictured below is in fact one of the very few buildings in Ottawa owned as a ‘co-operative’:

More common to larger cities such as Toronto and New York, a ‘co-op’ is a private corporation that has full ownership of a building, its units and common areas. Whereas a condo is governed by the statutes and legislation of the Condominium Act, a co-op is created by articles of incorporation and runs on its own by-laws, rules and regulations, as well as the private contractual agreements that exist between the corporation and its shareholders, otherwise known as members.

Rather than purchasing actual real estate, a co-op Buyer is purchasing one or more shares in the corporation that owns the building. The Buyer now becomes a member of the co-op and has voting rights, along with an occupancy agreement granting them long-term exclusive possession of a specific unit.

A co-op usually has one mortgage for the building itself; an agreement will set out a member's obligation to cover their proportionate share of the mortgage, the operating expenses and the building's annual tax bill. Many older co-ops have no mortgage at all and the Buyer must pay cash, or make a sizeable downpayment (25% or more) and have the remainder financed by the co-op. It is important to note that most banks will not finance the purchase of a co-op apartment—a lender cannot foreclose without a deed and a mortgage.

Also of note is that both ownership and responsibility is joint; should one member default on payment of the mortgage or taxes, all other members must pay out of pocket to make up the shortfall, or possibly risk losing their equity in the corporation. As a result of such risks assumed by a potential Buyer—and the difficulty in financing these purchases—co-op units are often priced well below market value.

The importance of getting along with your neighbours—in this instance fellow shareholders—can not be overstated. Those who follow the tabloids may remember that Madonna sued the members of her co-op board in NYC for blocking her purchase of an additional unit in her Central Park West building.

Retaining the services of a good real estate lawyer is a must when buying into a co-op. She will be the one reviewing the corporation's documents, financial statements and terms of the co-tenancy agreement. Any offer to purchase a co-op must also be drafted on forms specific to co-op purchases. Lastly, note that any offer made by a Buyer is subject to approval by the Board of Directors of the corporation (aka other residents). A review of the applicant's suitability, financial and otherwise, will be undertaken and form the basis of their approval.