A cooperative is a fairly rare form of building or estate ownership in which property (i.e a group of buildings) is owned and operated by a group of individual shareholders. These shareholders are commonly occupants of the cooperative property in question, but differ from tenants or lease holders in that they are provided with representative power in decisions that effect the property and the bylaws of the cooperative. Put simply, all of the shareholders in the cooperative either hold a vote, or, in larger cooperatives, may elect a board of directors or board of governance that oversee the decision making for the cooperative.
When buying into a cooperative, a shareholder is granted an occupancy agreement, which serves the same basic function as a lease. Through the contract, the members agree to occupy the property for a set period of time and sometimes contribute a set amount to the maintenance of the cooperative. A shareholder often does not pay rent, but at the same time is not legally considered an owner of the property; the property’s ownership entirely belongs to the cooperative. Usually, the shareholder pays for their share up front, very similar to a condominium agreement, although they do not technically own the apartment as real estate.
Cooperatives, as mentioned, make their own decisions as to how a property is operated and maintained.
Although, shareholder pricing is determined by the cooperative, it is generally calculated using a set number of financial models. Market rate, the most common of models, determines where the shareholder pays whatever the market rate of the share is up front, similar to the purchasing of a condominium (save for lack of explicit ownership). A substantial difference in the two models occurs when the shareholder chooses to leave the cooperative. Conversely, in the limited equity model, the shareholder usually has to part with their share at the set initial occupation amount, thus allowing for almost no recouping of their investment in the cooperative.
Cooperatives tend to be fairly uncommon in the United States and many other explicitly free market countries. By their nature, they are essentially non-profit, as the cooperative takes no additional monies from the shareholders than is needed to run and maintain the cooperatives They are also difficult to start-up; they are considered risky in terms of default, and often require a substantial investment by a significant number of people, which in an of itself, runs the risk of disagreement and conflict.