Read More »" /> Preserving the Cooperative into the Future | National Cooperative Law Center - Part 3

Preserving the Cooperative into the Future

A third choice is to handle it through an instrument which is recorded in the cooperative’s chain of title. In essence, this places developers on notice as they perform their due process in conjunction with their takeover bid. The authority of the board to direct this measure is dependent upon the bylaws and articles; if both are silent, the state statute should be researched.

Another approach may be the recording of a covenant that mandates the continuation of income maximums for incoming member-applicants in the case of limited equity cooperatives. That is, even though HUD and its income restrictions have expired, it may be possible to mandate the continuation of those restrictions – at least the income ceiling – in order to preserve the character of the cooperative, by using a covenant that runs with the land into the future.

More radical still is the concept of transferring title to the assets of the cooperative corporation into trust for the benefit of the membership, present and future. A trust document will be required, which may provide that there is no choice – that the property is to remain a cooperative for either a defined number of years as a minimum or for a perpetual term. A trustee needs to be appointed and a line of succession determined. It may be deemed appropriate for the cooperative board to serve as ex officio trustees.

Since this is a most severe alternative, it should not be attempted without full support of the board and membership. It requires a significant investment in time and money to agree and draft the terms of the trust document. To our knowledge, no cooperative has ever tried to do this, so it carries with it the risk of legal challenge by the current membership. If done correctly, there will also have to be changes to some of the current governing documents in order to place future members on notice that their rights have been affected to this extreme degree.

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