Owning, leasing, renting

Everything in the previous lesson depended on which of these you are being offered. This one is about reading the document — because in every case there is a document, and being shown it is the single most informative thing that happens on a visit.

The four shells

What would you actually own?

Four arrangements, described the way a community would describe them on a first visit. In each case, what have you actually bought — and could you get a mortgage on it?

1. "You buy the house itself, in your own name. The common house and the grounds belong to an association that every household is a member of, and you pay it a monthly charge."

The house, outright correct answer Right. This is ordinary freehold with common parts held in common — the shape most cohousing takes. You can sell on the open market, and an ordinary lender will treat it like any other house, though it may ask about the association’s finances. A share in an organisation The association owns the common parts, not your home. Your name is on the deed of the house, which is what makes this financeable in the ordinary way. A lease on land somebody else owns Nothing here separates the land from the building. Where a trust holds the ground, the community will say so early and in writing — it is the whole point of the arrangement. A right to live there, and nothing more A monthly charge is not rent. Service charges exist in ordinary owner-occupied housing too, and paying one says nothing about whether you own the home.

2. "You pay for a share in the co-operative. The co-operative owns the whole building. Your share comes with a written right to occupy flat 3. When you leave, you get back what you paid for the share."

A share in an organisation correct answer Right, and the financing consequence is the one to remember: a share is not real property, so an ordinary mortgage does not apply. You need a share loan, secured on the share and on your occupancy rights, and far fewer lenders offer them. The flat, outright The co-operative owns the building. You own a share of the organisation that owns it — which is a genuine asset, but a different one, and it is sold in a different way. A lease on land somebody else owns A right to occupy is not a ground lease. Under a land trust you own the building and lease the ground; here you own neither, and hold a share instead. A right to live there, and nothing more Closer than it looks, but the money makes the difference: you get your share back when you go. A tenant gets a deposit back, not a stake.

3. "The house costs noticeably less than the comparable one down the road. A charity owns the ground and leases it to you on a long lease. When you sell, a formula sets the price and the buyer has to qualify."

The building, on land somebody else owns correct answer Right. This is a community land trust. The discount and the resale formula are the same mechanism seen from two ends — the reason the house is cheaper now is the reason you keep only part of the gain later. The house, outright You own the building, which is real property and is mortgageable — but not the ground under it. A price below the comparable house next door is almost always land being held out of the sale. A share in an organisation No share changes hands. The trust owns the land permanently and you hold a lease on it, which is why the arrangement can survive many owners. A right to live there, and nothing more You can sell, and you keep a share of the appreciation. A capped return is still a return, and it is a very different position from renting.

4. "You pay monthly. You have a written agreement, you sit in every meeting, you have a full vote on everything including the budget, and you have lived here twelve years."

A right to live there, and nothing more correct answer Right, and this is the one people get wrong. Governance and ownership are separate questions. Twelve years of full participation builds no equity, and nothing here is yours to sell — which may be a perfectly good arrangement, so long as you know it is the one you are in. A share in an organisation A vote is not a share. Many communities give residents full governance rights without any financial stake, deliberately — it is how a group includes people who cannot buy in. The home, outright Nothing was bought. Length of residence creates no ownership on its own, however settled it feels by year twelve. The building, on land somebody else owns A tenancy is a lease of a kind, but it is a lease of the home rather than of the ground, and it ends rather than being sold. The test is whether you have anything to pass on.

What you can sell, and at what price

In a freehold arrangement you sell at whatever a buyer will pay. The common qualification is that the buyer must also go through the community’s membership process, which can slow a sale considerably and is worth asking about — a two-month membership process on top of a normal sale is a real cost.

Everywhere else, a formula sets the price. Formulas exist for a reason that is easy to lose sight of when it is your gain being capped: they are the mechanism that keeps the home affordable for the household after you. Take the formula away and the discount you received on entry becomes a windfall you take with you, once, and the arrangement is over.

Two protections are worth knowing about, because a well-run organisation offers them and a badly-run one does not.

A formula cannot normally be changed under you. In the classic community land trust structure, a change to the resale formula cannot be imposed on leases already in effect — existing homeowners have to agree to amend their own lease. Ask whether the same is true of the arrangement you are being offered.

You are expected to have taken advice. The model land trust ground lease documents informed consent in writing, through a letter from the homeowner setting out their own understanding of the deal and a separate letter from a solicitor confirming they reviewed it. That is a structure that assumes you got advice. Get advice.

The mortgage question

This is the blocker that stops people who are otherwise ready, and it deserves a direct answer rather than “speak to a broker”.

Freehold is ordinary. A lender will treat it as it treats any house, though it may want to see the residents’ association’s accounts and its reserve fund.

Land trust homes are financeable, on conditions. In the United States there is an established route: the loan can be sold to Fannie Mae if the ground lease carries the Community Land Trust Ground Lease Rider — Form 2100 — executed and recorded, and if a list of other conditions is met. Those conditions tell you a great deal about what a lender is worried about:

• The trust, or an affiliate, must have at least two years’ experience successfully managing affordable housing.
• The ground lease must be based on one of the recognised model leases, or the lender needs specific approval for it.
• The lease term must run at least five years beyond the mortgage’s maturity date.
• The home must be owner-occupied, a principal residence, and one or two units — not a manufactured home and not a co-op unit.
• Almost every ordinary loan product is available; the exception is adjustable-rate mortgages with a short initial fixed period.

Read that list as a checklist for the trust, not for you. A ten-year-old trust using a model lease is straightforwardly financeable. A brand-new project with a bespoke lease its founders wrote themselves is where people get stuck, and the fix is upstream of you.

A co-operative share needs a different product entirely. The loan is secured on your shares and on an assignment of your rights under the occupancy agreement — not on real property. It is called a share loan, the market for it is much smaller than the mortgage market, and eligibility depends partly on the co-operative’s own rules: a transfer fee, for example, can put the loan out of reach unless the lender is exempt from it on a foreclosure or the fee is charged only on profit.

In the UK and Europe, expect a specialist. Ecology Building Society, to take a lender that publishes its terms, lends up to 80% loan-to-value to housing associations and community land trusts and 75% to housing co-operatives and cohousing groups, over terms up to 35 years, and has a separate product for individuals buying into cohousing. It also states conditions that tell you what it is underwriting: a housing co-operative needs at least four independent resident members with at least half in paid employment, and new build has to reach a high energy rating.

Inheritance

Ask this early, however far off it feels, because it is where the four shells differ most and where families get an unwelcome surprise.

A freehold home passes like any other. A co-operative share passes as an asset, but whether your heirs may live there is a separate question governed by the co-operative’s rules and usually requires them to be accepted as members. A land trust home can be inherited — the technical guidance is explicit that people do receive these homes through inheritance — but the heir takes the lease as it stands, resale formula included, and the trust will want them to understand that before they inherit rather than after. A tenancy usually ends, though some jurisdictions give a resident family member succession rights.

The practical version: the community’s rules on inheritance are in the same document as everything else, and you can read them before you commit.

What to ask on a visit

Sources & further reading

1. 1 Fannie Mae — Community Land Trust Checklist — Form 2100, the model-lease requirement, the lease term rule, and the foreclosure point
2. 2 Fannie Mae Selling Guide — Loan Eligibility for Co-op Share Loans — what a share loan is secured on, and how transfer fees affect eligibility
3. 3 Ecology Building Society — community-led housing mortgages — published loan-to-value limits and eligibility conditions, for a UK lender
4. 4 Resale Formula Design — Grounded Solutions Network (2011) — formula amendment, informed consent, inheritance, and periodic reporting
5. 5 What joining costs — the three numbers these shells decide, with a calculator for the last one

Written by EcoHubs members, with AI assistance for drafting and editing, and reviewed by a person before publication. Facts are checked against the sources listed; anything we could not verify is marked. How this is written