What is a Cooperative for building?
A housing cooperative is a group of individuals who have the intention to have a house. For this purpose, they group theirselves in a cooperative with the aim of:
- Controling the construction project
- Obtaining it at the lowest possible price
- Controlling the construction process and quality materials
Buying in terms of cooperative in Spain became very popular in Spain in areas from the decades 50-90’s before the Spanish construction boom, overall in big areas like Madrid, Bilbao, Barcelona, Valencia, etc. It was a way from determinate group of particulars to associate and to develop construction projects for their own houses, getting the control of the project, and passing from the normal way of buying directly from builders.
Buying off plan has economic advantages in terms of price and payment method. The closed price in a bull market like the current one is a great advantage since this amount can be 15% lower than a house already built.
In case of the cooperative member, in which the member is the successful tenderer and user of the property, he can dispense with some intermediaries, which allows him to acquire the property at low costs. The amount of the purchase can be between 20% and 30% less than that of an over-the-counter house. This is one of the main arguments of cooperative members to embark on this type of project.
The constitution of a cooperative starts from the group of several people (partners) who contribute capital in order to carry out a project, in this case, the construction of houses.
Once the cooperative is legally formed, the land is acquired and a construction company responsible for the construction of the property is hired. The cooperative members therefore act as the promoters of the project.
It is usual to hire a management company, which will be responsible for the administration of the funds and the daily management of the works. In many cases, behind these managers, there are specialist promoters, whose advantage is that they have extensive experience and can achieve better economic conditions with suppliers, unions and materials.
It must be taken into account that even though there is a state law, each autonomous community is governed by specific legal conditions, in this case, by the same Statutes of the Constitution of the Community of owners.
Historically, there have been cases of developers starting cooperatives without members with the intention of raising capital in advance to begin construction. In these cases, the project may not be completed or problems and insecurities may arise for the contributors. To avoid situations of helplessness and economic losses, it is necessary to carry out some verification procedures:
- Land ownership and urban licenses
- Costs, guarantees and financing program
- Study the suitability of the project and characteristics: plans, descriptions, quality materials and service reports
- The economic contribution plan
- Trajectory, credit report, and information on the responsible manager and the builder
- Statutes and rights and duties of cooperative members
Buying a home in a cooperative regime is a valid option, it is only advisable to weigh the advantages and disadvantages of this formula and for each one to make their assessments to determine if it is convenient for them:
Advantages of buying a home in a cooperative regime:
- Economic: as explained at the beginning, by being able to dispense with other intermediaries and act as business partners, cooperative members can acquire a house at a price between 20% and 30% below the market for over-the-counter housing.
- Tailor-made: another benefit of cooperative formula homes is that members can adapt their home to their liking, making changes to the plan, materials or qualities, always within certain parameters.
- Members can participate in assemblies and actively participate in decision-making, where the votes of all participants have the same weight. The meetings may address all kinds of needs and questions such as the installation of security or surveillance elements will be raised until the allocation of free places or additional contributions, for example.
- In many cases, cooperative members’ mortgage conditions may be more attractive or with better conditions than the usual ones in the market.
- It is possible for a cooperative member to unsubscribe and recover the amounts contributed. In cases of unjustified withdrawals, it will be necessary to confirm the return deadlines or even the penalty percentage if it is included in the statutes. In this particular case, we have seen in the Statutes that there is not any right to unsubscribe from the community of owners. So, in the moment in which a member enters and sings, the rest of the co-owners may claim him to pay the all the payments to be done as part of the price. The community may even claim those payments in judicial way.
Disadvantages:
- Capital advance: to establish the cooperative and begin the construction process, it will be necessary for the partners to make the main contributions in advance.
- Construction times are often longer and longer for cooperatives, generally for a variety of reasons, the most important the hard way to take decisions in the community.
- In some cases, due to calculation errors, unforeseen events, improvements not contemplated at the beginning … funds may be scarce and extraordinary contributions may be necessary.
- There have been cases of promoters or managers who, in order to attract partners, make misleading advertising or calls for attention with inaccurate information and that can lead to serious distress situations. It is therefore important to follow the information gathering advice and check the Statutory normative, its structure, plans, as well as insurance and guarantees.
- Although for the management companies hired for the supervision and control of the works use to be specialists in the matter, there have been historical cases of firms that due to mismanagement, defective contracts or economic deviations have caused bankruptcy or total bankruptcy. In these cases, which are not common due to current regulations and control, the partners may lose all their contributions. It is essential to know the trajectory, the experience of the contracted firms and ensure that legally, at the level of guarantees, insurance and procedures is being carried out in a timely manner to guarantee the fulfillment of the project.
- Expenses related to the public deed of new construction work and division in horizontal property regime as well as those related to the constitution and division of the units will be for the account of the promoter in accordance with the provisions of current legislation.
- Sometimes Estatutes creates difficulties to members to leave the group after membership.
- The “community of owners” will be the “promoter” of the project. It means that all the responsibility and civil liability of workers, security and health, and even faults on the building, will be of the community.
- Financial risk: Co-owners may sell their shares on the community to third parties. But in case one or several of the co-owners fail on payments, there is a high risk to get financial problems on the project which can be blocked to continue on its development, causing penalties, delays or even the lost of the project.
Keys to consider when buying a propery in a Cooperative:
- To check the financial situation and the reputation from the builder and the Management company (how long the company is in business, financial reports, etc.)
- To check the Cooperative Estatutes
- To confirm the ways in which the amounts to be paid will be effectively used to buy the plot and/or to complete each of the construction steps
TLACORP
