21 Jul Some ideas about the advantages and disadvantages of housing cooperatives

How could the housing cooperative be defined and in which status are they currently? 

A housing cooperative is a type of cooperative whose social objective is to provide its members with housings, premises and other real estate, acquiring land to build and urbanize it.

That is to say, it is a group of people with the same interest so they join themselves to look for a common objective,  to get in this case a house, being one of the forms of cooperation, even if it is not the most common or ordinary form.

Nowadays the formation of this type of associations has increased during the last decade, although they represent a low percentage from the point of view of the cooperative movement.

However, until the real estate market is reactivated and financial institutions finally recovered, consolidated and lending again to the sector, the cooperative has been and may continue to be an interesting formula for the final consumer to buy a home.

Advantages and guarantees of housing cooperatives.

It is not the classic way, as we say to promote housing construction, but nevertheless they have always been justified by a main objective of reducing costs. They are formed by people with common interests who want to build a set or block of housing to later to adjudicate itself – the partners that make up the cooperative – seeking as one of its main objectives to eliminate the role of the promoter and his business benefit and, as a result, to reduce costs.

However, it must be taken into account that in practice the cooperative entrusts the management to recognized professionals of the sector, so that this “manager” or “management company” is of vital importance in the development of the cooperative.

When the financial market has demanded it, in times of crisis such as the very recent ones, having the joint and several guarantee of the cooperative partners has been a way to obtain guarantees on the good final result. When it is possible to count on the guarantees, the cooperative no longer differs much from the classic scheme of promotion of free work, it continues to seek profit but on the other hand the cooperative is exempted from liability in case of unsold housing.

In addition, and despite the fact that it has been controversial and risky, which today have been significantly reduced thanks to major legislative reforms and security payments, the cooperatives have the guarantees of Law 57/1968 and the LOE as well as the recent jurisprudence of the Supreme Court with regard to guarantees.

Management companies are obliged to guarantee the amounts paid into accounts by the partners, and on the reinforcement of this obligation, our High Court has recently been pronounced in this regard, allowing in some cases the removal or separation of the cooperative because of breaches of the management company.

Precautions and risks to be taken. 

1. It is relevant to ensure that it is registered in the Registry of Cooperatives of the Autonomous Community, and to obtain information on the following aspects:

-ownership of the land,

-the purchase option rights,

-the cost and funding program,

-the suitability of the project and,

-the amount of the necessary financial contribution.

2. But above all, it is fundamental to analyse the bylaws of the cooperative as internal self-regulating rule of the same. Bylaws are the Law for the cooperatives once they are part of the organization and it define the rights and obligations between participants, among other aspects.

3. It can even be interesting any information that is obtained from the manager, or to find out about the company that will be in charge of the management and its trajectory in the market.

4. In addition, it is a figure that also has its risks: the final price of the awarded housing can vary, if there are extra costs in the construction, and it is possible that the cooperative has to stay with surplus housing, if not achieved sufficient partners or if there are casualties.

5. Above all, prior legal advice from a contractual point of view may be interesting, since throughout his life within the cooperative, the partner must be signing the respective contracts of booking, debtor, subsequent award, etc.

Therefore from NAVARRO LLIMA ABOGADOS, we advise you to seek legal advice if you are thinking of acquiring a co-operative home soon, because adequate prior advice could avoid problems in the future.

Guillermo Martínez.

Lawyer.