Limited Equity Housing Cooperatives, or LEHC's, are affordable housing owned jointly by the residents. Each individual or family purchases a share in the nonprofit corporation that owns the property, and has the right to occupy an individual unit. Each household builds a small amount of equity on their share, usually tied to inflation, but by law, no more than 10% per year. Because the increase in equity is limited, the buy-in cost and monthly payments remain well below market rates. This makes home ownership available for lower-income individuals and families who otherwise could never afford to buy homes.
A Community Land Trust (CLT) is a community-based, membership non-profit housing organization run by an elected Board of Directors. The board is made up of people who live in land trust sponsored housing, members of the broader community, and people with specific skills to keep the CLT in good working order.
A CLT buys properties to develop affordable home ownership and preserve the affordability of existing housing. The CLT keeps ownership of the land, but sells the buildings and other “improvements” to the residents, who own, manage, and maintain them. The CLT provides a 99-land lease to the co-op. Income restrictions reserve these homes for lower-income residents who could not otherwise own their own homes. The CLT continues to provide oversight and technical assistance to help these properties stay well-managed and affordable. Residents can build up equity in their homes but that equity is limited, so the property remains affordable for future residents.
Why Live In A Co-op?
While a co-op member does not profit from increased property value, (s)he shares many of the other benefits of owning a home:
1) Security of tenancy: as long as a member pays monthly assessment and does not violate basic co-op agreements, (s)he can live there permanently without fear of eviction.
2) Control over living space: there is much greater flexibility in making alterations in interior and exterior space, than with a rented home.
3) Stability of rents: with careful budgeting, a co-op can keep rents very stable. When rents are raised, it is for a specific reason (such as to pay for increased costs) not for landlord profit.
4) Make your own rules: each co-op operates slightly differently, based on the physical layout, people living there, etc. No landlord can tell you what to do.
5) Tax benefits: a member can deduct a percentage of the mortgage interest and property taxes from income taxes, if (s)he itemizes deductions.
6) Equity build-up: members receive interest annually on the initial share investment.
How Do Tenants Form an LEHC?
Where a group of tenants lives in a rental property, the first critical step is to determine if the landlord is willing to sell the property. If so, tenants should seek assistance in assessing the feasibility of purchase. This will take into account the selling price, the rehabilitation needs, the residents’ incomes, the possibility of getting public funding, and other important factors. The Co-op Network can assist in this process.
If the owner is willing to sell, it will be important that (s)he allow a minimum of four months to put together an offer. More time is better. The next step will be to organize the residents to work together towards a purchase. Ideally, all residents will be interested in participating, but generally, at least 51% must agree to be co-op members before any real organizing can begin. If you have only 4 months, and no prior organizing has taken place, this will be a formidable task.
Co-op Network has assisted other tenant groups in acquiring their rental properties as co-ops. This includes securing funding from both private and public sources. Co-op Network also provides training in meeting facilitation, management, budgeting, conflict resolution and provides draft documents for becoming a co-op. However, the feasibility study has to determine whether sufficient funding is available for property acquisition and co-op organizing.
Co-op Network is closely affiliated with the Bay Area Community Land Trust (BACLT). BACLT has developed a training program that helps prepare a group to take ownership of their property, devlop legal documents for incorporation and gain the skills necessary to manage your co-op. For more information on this program, go to: BayAreaCLT.org