A Definition For Housing Cooperatives

A Definition For Housing Cooperatives

By Herb Fisher

It is amazing that after 146 years since the Rochdale Principles were set forth by the Rochdale, England pioneers in cooperation, there is not a readily available, cryptic definition of a cooperative, much less a housing cooperative. When asked, what is a cooperative, most all refer to those Rochdale Principles, as modified over the years. However, those Rochdale Principles are an operational guide for cooperators and do not describe what structure a cooperative should take. This writer assumes that the Rochdale pioneers understood that in different countries and in different times, laws regarding structure of business operations and the ownership of property could be different and could change. The Rochdale pioneers left it up to the successors to make a decision that would best permit the employment of the Rochdale Principles and the goal they desire to be reached.

Those writing about the subject of cooperation centered their discussion more about operations and how to put the principles into reality. The only reference this writer has found to this issue was in Jerry Voorhis’ book “”Cooperative Enterprise: The Little People’s Chance in a World of Bigness,” published by The Interstate Printers & Publishers, Danville, Illinois, 1975, Library of Congress Catalog Card No. 74-17878.

Voorhis was a modern pioneer in cooperation as a leader and president of the Cooperative League of the USA (CLUSA) and a founder of the National Association of Housing Cooperatives.

On page 15 of his book, he writes:

That characteristic (of a cooperative) is to be found in the purpose of the enterprise and the pattern of ownership which must necessarily go along with that purpose. It is this different purpose and it is this different pattern of ownership that distinguish cooperatives from other forms of economic organizations. First, a cooperative enterprise is one whose purpose is to provide its customers and users of its services with goods or services which they need at the lowest economically practicable net cost and in the form and quality those customers desire. The only way to be sure this is done is for the customers or users of the services to be also the owners, and the only owners, of the business.”

And on p. 17, Voorhis concludes,”Cooperatives, then, are consumer-owned, customer-owned, patron-owned businesses that belong lock, stock, and barrel to the same people who use their services.”

The Voorhis language above suggests the following as a definition that would fit for cooperatives operating in every sector of the cooperative economy.

“…a cooperative is an entity that owns or leases the assets that produce a benefit for its member/shareholders and operates in accordance with the Rochdale principles.”

Without departing from the Voorhis’ language and the above definition for all cooperatives generally, the following definition would be more specific for the housing segment of Cooperation.

“…a housing cooperative is an entity that owns or leases the housing for the purpose of providing housing for its member/shareholders substantially in accordance with the Rochdale principles.”

A couple of comments are needed with respect to the housing cooperative definition.

First, a relatively recent phenomenon has occurred in the United States in the form of mobile home park cooperatives. In this arrangement, the cooperative owns the land and all improvements on the land except the mobile home, which is owned by the individual cooperator, who leases the improved lot upon which the mobile home is situated. The cooperative owned land is considered as real estate (realty), but the mobile home (removable) resting on the lot is considered as personal property (personalty). The cooperative pays the insurance on the land and improvements for maintaining the land and improvements and other services and, in some states, the real estate taxes on the land. The cooperator pays for the mobile home, its personal property taxes, insurance on the mobile home and its maintenance. This is a “residential land owning cooperative” which supports housing but does not provide it. This requires a further thought through policy question for the Cooperative Movement as to whether it is to be included in this definition, an amended housing cooperative definition or have a definition of its own. This should involve the thinking of the mobile park cooperators themselves.

Secondly, the word “substantially” is used in this definition because the International Cooperative Alliance (ICA), in defining cooperator’s voting rights, describes one vote per person or, in the case of housing cooperatives, one vote per unit. Cooperatives organized under New York law and under business corporation laws have proportionate voting rights according to shares owned, which under ICA is reserved only for secondary cooperatives, i.e. cooperatives of cooperatives. NAHC has a long-standing resolution calling on ICA to change that requirement as to USA proportionate voting housing cooperatives.

A definition gives a common understanding of what is a housing cooperative amongst all working in the housing cooperative field. It provides a uniform definition for developers, writers, legislatures and government officials and, most importantly, for consumers.

Without a definition, we get anomalies from time to time, e.g. the Iowa developer some years ago, developed a housing cooperative but retained all of memberships and subleased all of the units to his tenants so he could gain advantage of real estate homeowners tax exemptions. The developer was successful because he satisfied the definition of a housing cooperative under Iowa law, made by uninformed legislators. That definition ignored the primary purpose of a cooperative is to use its assets for the benefit of its member/shareholders and not for investment purposes. By contrast, Illinois law provides that the cooperative homestead exemption is available only to the extent dwelling units are occupied by member/shareholders.

The test of members’/shareholders’ control over the cooperative’s assets would be determined if the members’/shareholders’ vote is required for the sale of the assets and the dissolution of the cooperative corporation. In a leasing cooperative, it would be the requirement for the members/shareholders to vote on termination or renewal of the lease of the residential property.

Herb Fisher, a recipient of the Jerry Voorhis Award, was a NAHC board member for about 48 years, President for 4 years and Board Chair for 13 years, is a retired housing cooperative attorney and a current non board member of a few NAHC committees.

 

A Definition For Housing Cooperatives

A Definition For Housing Cooperatives

By Herb Fisher

It is amazing that after 146 years since the Rochdale Principles were set forth by the Rochdale, England pioneers in cooperation, there is not a readily available, cryptic definition of a cooperative, much less a housing cooperative. When asked, what is a cooperative, most all refer to those Rochdale Principles, as modified over the years. However, those Rochdale Principles are an operational guide for cooperators and do not describe what structure a cooperative should take. This writer assumes that the Rochdale pioneers understood that in different countries and in different times, laws regarding structure of business operations and the ownership of property could be different and could change. The Rochdale pioneers left it up to the successors to make a decision that would best permit the employment of the Rochdale Principles and the goal they desire to be reached.

Those writing about the subject of cooperation centered their discussion more about operations and how to put the principles into reality. The only reference this writer has found to this issue was in Jerry Voorhis’ book “”Cooperative Enterprise: The Little People’s Chance in a World of Bigness,” published by The Interstate Printers & Publishers, Danville, Illinois, 1975, Library of Congress Catalog Card No. 74-17878.

Voorhis was a modern pioneer in cooperation as a leader and president of the Cooperative League of the USA (CLUSA) and a founder of the National Association of Housing Cooperatives.

On page 15 of his book, he writes:

That characteristic (of a cooperative) is to be found in the purpose of the enterprise and the pattern of ownership which must necessarily go along with that purpose. It is this different purpose and it is this different pattern of ownership that distinguish cooperatives from other forms of economic organizations. First, a cooperative enterprise is one whose purpose is to provide its customers and users of its services with goods or services which they need at the lowest economically practicable net cost and in the form and quality those customers desire. The only way to be sure this is done is for the customers or users of the services to be also the owners, and the only owners, of the business.”

And on p. 17, Voorhis concludes,”Cooperatives, then, are consumer-owned, customer-owned, patron-owned businesses that belong lock, stock, and barrel to the same people who use their services.”

The Voorhis language above suggests the following as a definition that would fit for cooperatives operating in every sector of the cooperative economy.

“…a cooperative is an entity that owns or leases the assets that produce a benefit for its member/shareholders and operates in accordance with the Rochdale principles.”

Without departing from the Voorhis’ language and the above definition for all cooperatives generally, the following definition would be more specific for the housing segment of Cooperation.

“…a housing cooperative is an entity that owns or leases the housing for the purpose of providing housing for its member/shareholders substantially in accordance with the Rochdale principles.”

A couple of comments are needed with respect to the housing cooperative definition.

First, a relatively recent phenomenon has occurred in the United States in the form of mobile home park cooperatives. In this arrangement, the cooperative owns the land and all improvements on the land except the mobile home, which is owned by the individual cooperator, who leases the improved lot upon which the mobile home is situated. The cooperative owned land is considered as real estate (realty), but the mobile home (removable) resting on the lot is considered as personal property (personalty). The cooperative pays the insurance on the land and improvements for maintaining the land and improvements and other services and, in some states, the real estate taxes on the land. The cooperator pays for the mobile home, its personal property taxes, insurance on the mobile home and its maintenance. This is a “residential land owning cooperative” which supports housing but does not provide it. This requires a further thought through policy question for the Cooperative Movement as to whether it is to be included in this definition, an amended housing cooperative definition or have a definition of its own. This should involve the thinking of the mobile park cooperators themselves.

Secondly, the word “substantially” is used in this definition because the International Cooperative Alliance (ICA), in defining cooperator’s voting rights, describes one vote per person or, in the case of housing cooperatives, one vote per unit. Cooperatives organized under New York law and under business corporation laws have proportionate voting rights according to shares owned, which under ICA is reserved only for secondary cooperatives, i.e. cooperatives of cooperatives. NAHC has a long-standing resolution calling on ICA to change that requirement as to USA proportionate voting housing cooperatives.

A definition gives a common understanding of what is a housing cooperative amongst all working in the housing cooperative field. It provides a uniform definition for developers, writers, legislatures and government officials and, most importantly, for consumers.

Without a definition, we get anomalies from time to time, e.g. the Iowa developer some years ago, developed a housing cooperative but retained all of memberships and subleased all of the units to his tenants so he could gain advantage of real estate homeowners tax exemptions. The developer was successful because he satisfied the definition of a housing cooperative under Iowa law, made by uninformed legislators. That definition ignored the primary purpose of a cooperative is to use its assets for the benefit of its member/shareholders and not for investment purposes. By contrast, Illinois law provides that the cooperative homestead exemption is available only to the extent dwelling units are occupied by member/shareholders.

The test of members’/shareholders’ control over the cooperative’s assets would be determined if the members’/shareholders’ vote is required for the sale of the assets and the dissolution of the cooperative corporation. In a leasing cooperative, it would be the requirement for the members/shareholders to vote on termination or renewal of the lease of the residential property.

Herb Fisher, a recipient of the Jerry Voorhis Award, was a NAHC board member for about 48 years, President for 4 years and Board Chair for 13 years, is a retired housing cooperative attorney and a current non board member of a few NAHC committees.