Co-ops are not as prevalent in Massachusetts as they are in New York. There are a few in Boston, Brookline, and Cambridge. Most community associations in Massachusetts take the form of condominiums.
Both condos and co-ops are similar in that residents live in separate units with shared common areas. The key difference between a condo and a co-op is the ownership structure. In a condominium, the unit owner owns his or her unit and owns an undivided interest in the common areas as a tenant in common with all of the other unit owners. Condominium units are assigned a percentage interest which defines their voting rights and their percentage of responsibility for common expenses. In a co-op, the apartment building, the units, the land and common areas are all owned by a non-profit corporation. The homeowner does not own the unit, instead they receive shares of stock in the corporation, essentially making them a shareholder in the cooperative. The non-profit corporation then enters into a proprietary lease with the homeowner for their unit.
Both forms of ownership will have restrictions built in. Both entities have governing boards. Massachusetts Condos are a statutory create and are governed to a certain extent by the Massachusetts Condominium Act, G.L. c. 183A [CLICK HERE]. Cooperatives are governed by their own Act, G.L. c. 157B. [CLICK HERE] Because they are non-profit corporations, in some circumstances they are subject to the Massachusetts Non-Profit Corporations Act.
Many condominiums have separately metered utilities and might even have certain limited common elements assessed maintenance on a basis other than percentage interest. This is less common in cooperatives, where everyone just pays their share based on their percentage of stock ownership. Although the more sophisticated cooperatives have figured out a mechanism for apportionment of certain utilities based on usage.
One major difference between condominiums and cooperatives is in a co-op, the Board has power to turn down a potential buyer of a unit based primarily on financial issues, credit history, etc. This buyer approval process has led to many discrimination lawsuits, where rejected buyers alleged, they were rejected for reasons other than financial or credit reasons. Some co-op documents may even give the Board the power to reject a purchase if the price is too low or out of sync with value due to perceived impact on the building as a whole. Other co-ops will have a right of first refusal to match (and a few condo docs) will give the Board the right to match an offer. Some condominium documents do this as well, although it is disfavored by Fannie Mae and Freddie Mac, who control the secondary mortgage markets.
Lastly, real estate taxes are also different. In condos, real estate taxes are assessed to the unit owners, as they own the real property. In co-op’s the real estate taxes are assessed to the co-op board, as the corporation owns the real property. Taxes are then passed down according to ownership percentage in the corporation.
The Residential Real Estate Tax Exemption
When it comes to real estates taxes, there is an additional nuance for cooperatives thanks to Chapter 145 of the Acts of 2008. This law allows a cooperative housing unit to enjoy a 30% real estate tax value exemption (of the average value of all residential units in the cooperative). In order to be eligible for the 30% valuation exemption, the co-op must file with the City of Boston Assessing Department on or before October 31 of each year in which the exemption is requested, documentation establishing that: (1) proof of all members status on January 1 of the preceding year, (2) all corporate filings made by the co-op under M.G.L. c. 157B , (3) a statement of the shares owned by each member, date of acquisition, (4) a copy of the proprietary lease, and (5) proof that the member occupied the housing unit as a primary residence for income tax purposes. The City of Boston Assessors office has a form for this exemption.
The exemption only applies to housing units that are occupied as their primary residence. Rentals are rare in co-ops anyway.
For those who do not live in Boston co-ops, the residential exemption is available to co-ops, condo owners and single-family homeowners in at least 14 cities and towns across the state. G.L. c. 59, Section 5C allows towns and cities to adopt the residential exemption. The purpose of it is to lower real estate taxes on residential property for those that live there, as opposed to those that rent their property. The towns and cities that have adopted some sort of Residential Tax Exemption are: Barnstable, Boston, Brookline, Cambridge, Chelsea, Everett, Malden, Nantucket, Provincetown, Somerset, Somerville, Tisbury, Waltham and Watertown. Like I said, most co-ops are in Boston, Cambridge, or Brookline, hence most of them should be able to benefit from the Exemption.
How does the exemption work? Real Estate taxes are based on value. In most towns the exemption can be 35% of the average assessed value of all Class 1 residential parcels. For example, a qualified homeowner in Brookline had $309,751 deducted from the assessed value of their home before taxes were calculated (municipalities typically assess taxes based on a set rate (e.g. $10.00 residential and $16.00 commercial) differentiated between residential or commercial per $1,000 in value). However, the law also provides that in no event may any parcel of real estate be assessed for less than 10% of its fair value, so the exemption cannot bring your taxes down to zero. In Brookline, successful applicants for the exemption will receive an annual tax savings of $3,088.22 for fiscal year 2023. That is not chump change.
While the exemption for Boston co-ops is thirty percent (30%), every municipality that has enacted the residential tax exemption is different. The maximum exemption allowed under state law is 35%. Each municipality has its own form and process for processing, proving, and obtaining the exemption. It is crucial however for a homeowner to apply for the exemption, otherwise the homeowner will not get it. If you live in one of the 14 municipalities that have adopted the exemption, contact their Assessor’s Office for information. Most of the municipalities If a homeowner in a municipality that has adopted the residential exemption does not receive the exemption in a particular year, for whatever reason, they have the right to appeal the same to the Appellate Tax Board.
For any questions on Cooperatives or the Residential Tax Exemption, contact Ed Allcock (ed@amcondolaw.com).
Massachusetts Condominium Act, G.L. c.183A [CLICK HERE].
Cooperatives are governed by their own Act, G.L. c.157B. [CLICK HERE]
Up Next...
