The co-op
Saturday, February 6th, 2010"Why do you live in a commune? Please explain…"
So asks a friend. I’ve moved. But not to a commune! To a co-op. This post aims to start explaining what it is and why living here is so desireable.
This is an especially good time to set out the basic principles, given Gordon Brown’s statement earlier this week that Ed Miliband will work with the Co-operative party to draft Labour’s forthcoming election manifesto. Gordon Brown, it is worth remembering, is the first British Prime Minister to be a member of the Co-operative Party, alongside his main party affiliation (New Labour).
This post will focus on the general legal principles behind cooperative housing, especially the one I now live in. I hope to discuss other aspects in later posts, if there’s any interest. My overarching aim is to spread some appreciation for the concept (both from self interest and in the hope that maybe readers or their acquaintances might consider helping co-ops to be set up or develop by getting involved in their financing, making gifts or provisions in their wills.
I’m a tenant, with similar basic rights and obligations as any other poor bastard grinding away in this big city, paying rent to a landlord. But in a co-op housing association, there’s a difference – my landlord is virtual; a legal fiction, a juristic ghoul created by the founders of the co-op when it was built 35 years ago, courtesy of a big change in the law in 1965.
When you sign the tenancy agreement, a token £1 payment gets you a share in the co-op society, making you a full member. Through voting and volunteering, the members of the co-op animate this ghoulish puppet. Dear landlord – we would like to hedge against rises in gas prices and slash our CO2 output by installing woodchip-fuelled heating systems. And the landlord makes it so. Dear landlord – we would like you to please set aside some of our rent (about £51 a week – £40 for basic rent, the rest is bills, tax, insurance and service charge) to fill a room with paint, tools, flooring, lightbulbs any other consumables we need for our houses. Make it so! Dear landlord – we would like a totally noninterventionist, liberal policy concerning how we arrange the house, paint walls, put up fixings, etc. So.
The landlord is us; we hire CDS (itself a cooperative) to handle the bureaucracy. We own the land (on long lease from the council) and can do largely as we please with it. So when one resident – a designer with the very illustrious Heatherwick Studio – came up with a plan to build a huge storage cage for bikes built with Russian railway sleepers – the co-op agreed and members got together to get it built, with the money, as always, coming from our rent.
There are ~120 of us living here, in houses and apartments. We live a 20 minute cycle from Waterloo, five minutes from a Jubilee Line station, and just around the corner from Goldsmiths Art College. It’s insane how far rent can stretch, even this close to central London, when nobody’s trying to make a profit.
———- Legal detail
The governing statute for the co-op is the Industrial and Provident Societies Act 1965. Under it and the Financial Services & Markets Act 2000, the co-op is registered with the FSA (Financial Services Authority). As with most co-ops, companies (often co-ops themselves) provide co-op housing societies with management services and registration, doing the basic bureaucracy and letting the ‘hippies’ get on with actually calling the shots concerning the property.
Share structure:
Like public companies, a co-op has share capital. There are diverse ways of organising this, but where I live the share structure is par value, fully mutual: each member gets 1 share; each share costs £1; and on moving out, you get your £1 back – you can’t take it with you or sell it for more even if the property has gone up in value. Your share gives you a single vote on the rare occasions where everybody gets together to vote on something. Liability when things go wrong is usually limited to that £1. The property remains in the ownership of current occupants (members) – but any profit cannot go to them; it must, by its regulations (and probably by law*), be spent on improving the co-op. If one day the land is sold at a profit, that profit has to stay within the co-op or find another co-op (cy-pres principle) – the same with any excess from the rent. This is a form of land ownership that’s very different to most in the country – it is not owned in the hope of making a buck at the end (what this means for the mortgage provider, I’m not sure yet).
Tax:
The land is private property; my council tax is paid from my weekly £51 rent (council tax is £2.58/week at present). The co-op, if fully mutual, is normally exempt from Capital Gains Tax and Corporation Tax*; co-ops can also often classify as charities and get the vast tax benefits associated with that, too. I don’t know for sure whether my co-op is a registered society but I am going to infer it isn’t: charitable housing associations must give their members security of tenure, whereas my contract stipulates that I can be kicked out with a month’s notice (that’s also my notice period), which makes getting mortgages much easier (the lender is sure it can take exclusive repossession of the vacant property if the co-op were to default.
Tenancy:
A co-op, being run for its inhabitant’s benefit, is not an Assured Shorthold Tenancy; it is a contractual tenancy, which ends when membership is resigned or withdrawn. Things sometimes go wrong. The wrong sort of person is let in. A fully mutual status, with properly defined rules, allows the co-op to act to end a tenancy and withdraw someone’s membership; a sad but crucial control mechanism.
Financing the purchase
I’m fresh here and have little idea how the co-op was first set up, the lease acquired, or the houses built (surprisingly nice for 60s housing!). So this section is subject to the proviso that I’m talking about co-ops in general, which may or may not apply to where I live.
Primary funding for establishment will come from mortgaging the property, to the Housing Corporation and/or the bank (from my contract it seems both mortgages were entered into at the start – I have no idea what’s been paid off to date). Secondary funding is then from the members, from charities, the government. Some state funding was provided in the early 70s under Reg Freeson. Fresson was a member of the Co-operative Party and Housing Minister under the then Labour government – I suspect some of that went into this community; the timing fits. This co-op does not take council money as the council then demands the right to nominate people (e.g. the homeless) into membership – people that usually just want to get housed and don’t lift a finger for the co-op.
Most interestingly, co-ops can issue loan notes (properly called loan stock) to finance their activities. An investor will receive a fixed rate of interest back over the repayment term.
Those are the basics; I thought I’d start with the legal nitty gritty, having just come from a land law class on (of all things) leases!