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UNITED STATES DEPARTMENT OF LABOR L . B. Schwellenbach, Secretary BU R EAU OF LABOR STATISTICS A . F . Hinrichs, Acting Commissioner Organization and Management o f Cooperative and Mutual Housing Associations Bulletin No. 85 8 (Revision of Bulletin No. 608) For sale by the Superintendent of Documents, U . S. Government Printing Office W ashington 25, D. C. - Price 20 cents Letter o f Transm ittal U nited S tates D epartment of L abor, B ureau of L abor S tatistics, Washington, February h 1946. T he S ecretary of L abor : I have the honor to transmit herewith a pamphlet setting forth the proper methods o f procedure for the organization and management o f cooperative and mutual housing associations. The present report is a revision o f the Bureau’s Bulletin No. 608, bringing the subject matter into conform ity with present practice. Many persons within and without the cooperative movement, qualified by experience and training, have contributed to this manual. Their number includes housing experts, architects, and attorneys, as well as cooperators who have participated in one or more housing projects. In addition to Florence E. Parker and Alexander Findlay o f its own staff, the Bureau wishes especially to acknowledge the valuable contributions and suggestions o f Dale Johnson, Huson Jackson, Dorothy Kenyon, and Udo Rail. A . F. H inrichs , A cting Commissioner. Hon. L. B . SCHWELLENBACH, Secretary o f Labor. iii Preface The present bulletin is a revision o f Bulletin No. 608, issued in 1934 at the request o f the Consumers Advisory Board o f the National Recovery Administration. It was one o f a series o f three pamphlets dealing respectively with the organization and management o f consumers5 cooperatives in general, cooperative petroleum associa tions, and cooperative housing associations. The Bureau o f Labor Statistics, in pursuance o f the directive under the law creating it, to “ acquire and diffuse * * * useful inform a tion on subjects connected with labor in the most general and com prehensive sense o f that word,55 had for many years been collecting information on the consumers’ cooperatives. This inform ation covered, among other things, statistics o f membership and business, methods o f operation, and causes o f success or failure. The Bureau’s studies had shown that one o f the most prolific causes o f failure o f cooperative associations was failure to organize on a proper basis, with an understanding o f best methods and sources o f help. T o provide such information Bulletin No. 608 was issued. F or the material in that bulletin the Bureau was especially indebted to the late Agnes D. Warbasse, then secretary o f the Cooperative League. A t that time apartment buildings were the only form o f cooperative housing in this country. The pamphlet was therefore drawn up with them in mind. Since then several cooperative housing projects have erected individual dwellings, which involve their own problem s; pro tection o f both member and lender has become available through Government insurance o f m ortgages; and mutual ownership o f pub licly built housing has developed. The present report therefore revises the form er one, bringing it into conform ity with current conditions and practices. It covers certain aspects o f planning, construction, financing, and operation which go beyond the single step o f cooperative ownership o f real estate. Model bylaws, together with explanations (where necessary) o f the reasons why certain provisions are desirable or important, are given. A model lease and a member’s share subscription agreement are also included. IV Contents Page P r e fa c e _________________________________________________________________ iv Introduction___________________________________________________________ 1 General characteristics o f cooperative housing__________________________ Cooperative principles______________________________________________ Deviations from standard cooperative practice_________________ Advantages and disadvantages o f cooperativehousing________________ Adequate planning____________________________________________ Opportunities for savings_______________________________________ Elimination of speculation______________________________________ Safeguards for members and association________________________ Collateral cooperative activities________________________________ Disadvantages_________________________________________________ 2 3 4 5 5 6 8 8 8 9 Desirable prerequisites for successful cooperativehousing________________ The membership g ro u p ____________________________________________ Preliminary exploratory study______________________________________ 9 9 10 Considerations o f site and type o f p ro je ct_________________________________ Purchase o f existing building_______________________________________ Suburban residential projects_______________________________________ Urban redevelopment p rojects________________________________________ Mutual home ownership_____________________________________________ 11 11 12 13 14 Considerations relating to community *md architectural planning___________ Community planning______________________________ Building design______________________________________________________ Construction operations_____________________________ Thorough utilization o f cooperative techniques________________________ 10 19 Starting the association__________________________________________________ Incorporation of association________________________________________ Articles and bylaws o f the association_____________________________ 20 20 21 Financing the enterprise__________________________________________________ Initial expenses_____________________________________________________ Mortgage procedures_________________________________________________ Initial financing_____________________________________________________ Members’ subscriptions for shares________________________________ Bond issues_______________ ________________________________ ;-----Preferred stock ________________________________________________ Debentures_____________________________________________________ Personal loans obtained by members____________________________ 22 22 22 25 25 26 26 26 27 The member in relation to the organization______________________________ Ownership o f shares, not o f dw elling_______________________________ Member’s lea se_____________________________________________________ Rental charges or monthly maintenance payments___________________ Voting pow er_______________________________________________________ Withdrawals of members____________________________________________ 27 27 28 28 30 30 y 16 17 10 Page Administration and management________________________________________ Administration of the association___________________________________ Management o f the property_______________________________________ Committees________________________________________________________ P o lic ie s ___________________________________________________________ Subletting or subleasing to nonmembers________________________ Rental of commercial property_________________________________ Interest on share capital_______________________________________ Members’ deposit account______________________________________ Effect of increase or decrease in property values________________ 32 32 32 32 33 33 34 35 35 36 Tax status o f cooperative housing associations_________________________ 37 Use of surplus savings_________________________________________________ 37 Dissolution o f association______________________________________________ 39 Central cooperative housing organizations______________________________ Supervisory agency and cooperative housing fu n d ____________________ Federated activities o f cooperative housing associations-------------------- 40 40 40 Appendix A.—Model bylaws for a cooperative housing association------------Appendix B.— Sample share subscription agreem ent____________________ Appendix C.—Model lease for a cooperative housing association--------------Appendix D.— Citations of la w s _________________________________________ Appendix E.— Cooperative leagues and wholesale associations___________ Appendix F.—Where the housing dollar g o e s____________________________ 42 48 49 58 59 60 Index__________________________________________________________________ 33 vi Bulletin l^o. 8S8 of the United States Bureau of Labor Statistics O rganization and M anagem ent o f C ooperative and M utual H ousing A ssociations Introduction TH E chief purpose o f consumers’ cooperative and mutual housing is to furnish the participating members with the best possible housing for the cost, under conditions which will insure the maintenance o f community values. These aims are facilitated in part by the nonprofit nature o f cooperative or mutual enterprise, in part by the elimination o f unnecessary expenses, wastes, or profits, in part by good planning, and in some cases by increasing the owner’s opportunity to furnish a part o f the labor or materials required for his dwelling. The economies are not sought at the expense o f labor, as cooperative enterprises should expect to pay the prevailing wages applicable to construction in their vicinity. The members’ motivation lies in the desire to obtain housing fo r their own use, without expectation o f speculative profits to them selves from the sale or rental o f their dwellings to others. Although fully cooperative housing does not provide for outright individual ownership o f a particular dwelling, it offers the virtual equivalent— security o f possession and occupancy—at a saving to the fam ily budget which more than makes up for the largely illusory advantage o f being able to display a title deed to the dwelling unit occupied. This bulletin deals in some detail with the suggested solutions for many o f the prob lems which w ill confront groups seeking to apply the principles o f con sumers’ cooperation to the field o f housing. Housing is one o f the most important fam ily needs. Next to food it looms largest in the budget. Ownership o f a dwelling is probably on© o f the most widespread fam ily ambitions. Cooperative housing there fore represents a field offering great potentialities, but it is one in which as yet comparatively little has been done in this country. The European countries, in which housing associations form an important part o f the cooperative movement and in which not only individual dwellings but whole communities have been built cooperatively, illus trate what can be done. In the United States, until a few years ago, the only cooperative housing consisted o f apartment dwellings which cooperatives had bought or constructed in Greater New York. In the. few years imme diately preceding the Second W orld W ar, several housing projects were started for the construction o f individual dwellings and in two cases an entire new community was formed. Some o f these groups, for reasons set forth later, have been unable to proceed on a thoroughly and consistently cooperative plan. Their activities and the plans o f others were halted by the war and the building restrictions that were imposed. 1 2 ORGANIZATION OF HOUSING ASSOCIATIONS Indications are that the housing field w ill witness considerably in creased cooperative activity, if some o f the outstanding difficulties can be overcome. Some o f these difficulties are inherent in the nature o f the building industry; others stem from the economic uncertainties and temperamental characteristics o f American wage earners. The building industry is one in which prices o f materials continue high even in times o f depression and otherwise falling prices, in which hourly wage rates are high (though annual earnings are comparatively low, because o f seasonal unemployment), and in which technological improvement has thus far been slight, resulting in the continuance o f costly hand methods.1 The resulting high cost o f dwellings has been the first and probably the greatest bar to home ownership. The wage earner faces in many cases the prospect o f unemployment, inability to meet his payments, and possible foreclosure with loss o f equity. F ur ther, Americans are a restless people, moving about in search o f work or change o f environment; many hesitate to tie themselves to any one spot by investing their savings in a house, not recognizing that such a tie can be cut with less trouble and less risk o f financial loss i f legal ownership is vested in a cooperative association instead o f an indi vidual householder. M ajor barriers to housing on a cooperative basis have been lack o f knowledge and inform ation about the essential principles o f cooper ative housing in its broadest sense, and the reluctance o f some lending agencies to grant mortgage loans to cooperative associations, especially on detached residences which have usually been financed by an ownerexecuted mortgage. It is possible also that cooperative housing in the United States has been retarded by a mental attitude based on an over valuation o f the benefits o f speculative individual ownership and an inadequate understanding o f the advantages offered by nonspeculative cooperative ownership to the fam ily concerned prim arily with obtain in g the best possible housing fo r every dollar spent. Nevertheless, the diverse and numerous benefits which can accrue to the consumers o f housing through cooperative techniques have prom pted the organization o f dozens o f groups seeking to use this ap proach to the fulfillment o f their needs. One o f the chief purposes o f this pamphlet is to assist such groups in studying the subject o f coop erative housing. The field is complex, dealing as it does with the numer ous problems o f group action, land purchase, planning, construction, financing, and operation and maintenance o f housing accommodations. W ith relatively so little published regarding the cooperative principles or solutions which have proved themselves in successful use, it is under standable why there have been such diverse policies and thus fa r so few accomplishments in the field o f cooperative housing. General Characteristics o f Cooperative Housing Genuine democracy is essential to the effective functioning o f a co operative housing association. Except as necessitated by the space limitations o f available or projected housing facilities, by the cooper ative’s obligations to its members to safeguard their investments, and by its obvious responsibility to promote a harmonious community, membership should be open to any persons desiring to participate.1 1 Techniques o f mass production and prefabrication promise some alleviation o f this difficulty. GENERAL CHARACTERISTICS 3 Each member or fam ily should have one vote, regardless o f the amount o f stock owned. Safeguards should be provided against speculation. In a completely cooperative housing association, the member does not receive title to any individual apartment or dwelling. H e owns shares equivalent to the amount o f the equity required for the apart ment or dwelling he occupies. H is evidence o f ownership consists o f a stock certificate which indicates the amount o f his investment and entitles him to lease his apartment or dwelling from the association. Legal ownership o f the apartment or dwelling is vested in the associ ation as a whole. A member, in withdrawing, gives his association due notice that he wishes to dispose o f this equity and give up his apartment or dwelling. The withdrawing member is entitled to the fixed par value o f his paid-up shares (minus any debts due his association fo r rent, damages or the like) provided this is permitted by law and is possible without endangering the financial position o f the association. I f addi tional funds have been deposited with the association, or if the member has amortized the indebtedness against his dwelling more rapidly than the property has depreciated, this account should also be settled. In some types o f projects, especially in single-fam ily residences, the indi vidual may have made significant permanent improvements for which an adjustment might be allowed. In no case, however, should the in creased value resulting from the group’s activity from the benefits o f cooperative principles, or from fluctuation in the read-estate market, be a basis fo r a withdrawing member’s claim. The corporate earnings o f the association, after establishing such reserves as may be required by law or prudent business practices, are usually paid to the members as a patronage or rent refund (this is also called a ‘‘savings return” ) . The effect o f this disbursement is to reduce the members’ net payment fo r the housing accommodations to the actual cost involved, and to reduce the corporation’s net earnings. These policies are follow ed in consumers’ cooperative housing associ ations because the purpose o f such associations is not to make money but to obtain for the members desirable dwelling units on a service basis, thereby giving the members fu ll value fo r their payments. I f a member elects to withdraw from the group and its benefits he may do so in a manner which is fa ir to him. However, members o f a genuine consumers’ cooperative housing association should recognize that the primary purpose o f the association is to furnish the members, in their capacity as consumers, good housing at cost. No member is entitled to claim an individual financial profit from any phase o f the association’s operation. Cooperative Principles The follow ing are the specific cooperative principles to which hous ing associations should conform : 1. Democratic control; one vote only for each member, regardless o f the amount o f stock owned. Responsibility fo r administration to rest with the board o f directors elected by the owners. This means decen tralized control fo r purposes o f democracy and centralized administra tion fo r purposes o f efficiency. 2. Any interest paid on invested capital to be at a fixed rate not exceeding the current legal rate. However, i f the ratio o f capital in vestment to value o f occupied dwelling is the same for all members, 684613°— 46-------2 4 ORGANIZATION OF HOUSING ASSOCIATIONS the payment o f interest on shares becomes not only superfluous but un desirable. This is explained on page 35. 3. Legal ownership o f the property to remain vested in the associ ation. 4. Shares in the association’s capital stock to be nontransferable ex cept with the consent o f the association, and never at more than par value. 5. Surplus savings accruing from the association’s operations, which are not used for expansion or collective purposes, to be returned to the tenant-members as savings returns in proportion to the amount o f their patronage or monthly payments. 6. Neutrality, on the part o f the association, as regards political, religious, and other extraneous matters on which the members may entertain differing opinions. DEVIATIONS FROM STANDARD COOPERATIVE PRACTICE Many organizations in different parts o f the world, which are called “ cooperative” but are not entirely so, deviate from the above policies in one or more respects, enumerated below. From the standpoint o f genuine and complete consumer cooperation, such practices are unde sirable and should be avoided i f at all possible. They tend either to increase the ultimate cost o f housing to the consumer or to have a di visive effect on the housing community by destroying the identity o f self-interest with community interest and stressing the form er at the expense o f the latter. 1. Some associations build cooperatively but sell homes or apart ments outright, giving title to the property owner. Such a policy, al low ing individual sale o f the home at a profit, obviously encourages speculation, promotes instability o f residence, and destroys the cooper ative aspects o f the enterprise. This deviation has been adopted in some cases because the members have never thoroughly agreed with the fundamental aims o f cooperative housing. In others, especially in projects involving individual houses, the association found it necessary to give members title, in order to obtain the required financing. As a measure o f protection to the project some associations under these cir cumstances require the member to execute an option, perm itting the association to have first opportunity to buy back the dwelling at a price previously agreed upon. 2. Some associations which do not give title to the property never theless allow the members to sell their shares to the public at their own valuation. This also makes speculation not only possible, but inevi table. Ultimately the cooperative plan is destroyed. This policy, which is widespread among the so-called “ cooperative” apartment houses sponsored by real-estate interests, subjects the incoming mem ber to the risk o f buying at inflated prices and perhaps o f having to sell later at greatly depressed prices. 3. Some associations own the land cooperatively but give the indi vidual member a 99-year lease on which he may build his own home and sell it at his own price. This practice also fails to provide against speculation. 4. Some allow voting by shares instead o f lim iting the vote to one per member. In such cases investment—ownership o f property—de termines control. GENERAL CHARACTERISTICS 5 5. Some associations observe all other rules o f cooperation except that they permit their members to sublet their apartments or dwellings at a profit which the member is permitted to keep. Properties have been completely emptied o f owner-members as a result o f such a policy. Subleasing should not be permitted except fo r brief periods o f an emergency character, as it effectively eliminates the association’s con trol o f its facilities. 6. Some societies rent as many as h alf o f their dwellings to non members, at a profit which they apply to the reduction o f the members’ monthly payment, thus exploiting the tenants fo r the benefit o f the members. Renting apartments to nonmembers should be considered only i f vacancies compel this action; i f renting is resorted to, it should be with a view to recruiting the tenants as members. 7. Some accept philanthropic grants or funds from civic bodies and permit the grantors to control and administer the property. Mutual ownership (later described), as originally proposed, gave Government and public representatives two-thirds control. Generally it would be better for the association to stand on its own feet, and retain control o f its activities. However, the election or appointment o f a cooperative housing expert to serve on the board o f directors, perhaps without vote, might be o f considerable help to the association. 8. In some cooperative associations there is no safeguard against dissolution o f the association for the purpose o f enabling the members to realize their pro-rata interest in the association’s assets. This has destroyed some cooperative associations. Mutual housing associations and the lim ited-dividend housing laws provide that, upon dissolution o f an association, all gains beyond an authorized return on capital must be paid into a public agency such as a housing authority. Several o f the more recent consumers’ cooperative laws also contain provisions designed to meet this situation.2 Cooperative housing associations which are w illing to assign, for the prom otion o f cooperative housing, any net value above shares at the time o f dissolution should communi cate with the Cooperative League o f the U .S.A., 343 S. Dearborn Street, Chicago 4, 111. The League is w illing to handle, as trustee, any such funds a dissolving asociation may assign to it. Advantages and Disadvantages o f Cooperative Housing The advantages o f living in a cooperative housing development vary with the degree o f utilization o f cooperative techniques and the wis dom o f the members’ decisions. Through cooperative housing, mem bers should be able to live in well planned and constructed dwellings, in better communities with a measure o f security and neighborliness, and at a fairer cost than in housing operated for profit to investors. ADEQUATE PLANNING A cooperative group, being assured in advance o f the demand for and rentability o f the housing which it is going to create, need not seek the most convenient or fashionable location, fo r competitive commercial 2 Thus, the laws o f the D istrict of Columbia, M aine, and New Mexico provide that after pay m ent of the association's debts and par value of shares (including shares partly paid u p ), any money remaining must be divided “ in either or both o f the following ways as the articles [of incorporation] may provide: (a ) Am ong those patrons who have been members or subscribers at any tim e during the past 6 years, on the basis o f their patronage during that period; (b ) as a g ift to any consumers' cooperative association or other nonprofit enterprise which may be designated in the articles.” 6 ORGANIZATION OF HOUSING ASSOCIATIONS advantage. I t can safely choose lower-cost land, with consequent sav ings and more plentiful space. Likewise, better utilization o f the site and better planning are possible when the housing is created to be lived in rather than to be sold or rented at a profit. The buildings erected in New Y ork City by the Amalgamated group are examples o f well-planned apartment dwellings with adequate space fo r light, air, recreation, gardens, and lawns. The Crestwood, W is., project exemplifies not only excellent selection o f site to provide after noon shade, shelter from north winds, and natural drainage, but also wise lay-out o f straight dead-end streets, which discourages through traffic and provides quiet and safety besides avoiding the extra expense fo r longer sewer lines and utility connections entailed by winding streets. Greater value to the member-occupants in cooperative projects can also be achieved through the architectural design and other architec tural services. A ny well-advised housing association w ill make a care fu l choice o f the architects fo r its housing units, its other buildings and the site lay-out, and as a result obtain architectural services well above common standards fo r promotional building. Since good value starts with design appropriate to its purpose, meeting the needs o f the occu pants, and using space and materials efficiently, this is a valuable ad vantage. Furthermore, the architect fo r the houses is free from any requirement to include unwise and unbalanced features in order to increase sales appeal. Expensive materials and ornamental features (commonly included in small houses built fo r sale) are provided only at the expense o f features o f much greater value (over-all size, ample closet space, a heating plant large enough fo r economical operation, etc.). In specifying the materials and equipment to be used, the archi tect, who has a professional knowledge o f the field, is free to select m inor brands whenever those give a real saving; there is no restriction to the leading brands which are emphasized so greatly in sales effort. OPPORTUNITIES FOR SAVINGS Cooperative effort, resulting in the provision o f housing accommo dations—either apartments or individual houses—for a group o f fam ilies, makes possible considerable savings in cost o f land, construction, operation, and maintenance. Speculative profit o f the real-estate pro moter, amounting generally to 10 percent and often more, is eliminated, as are also large salaries paid to landlords or agents. Construction o f a group o f houses simultaneously is more economical than construction o f one house at a time and makes possible substantial savings through bulk purchase o f materials as well as interior fittings. In one possibly unusual case, it is reported, a 10-percent saving in construction cost was effected on a group o f 5 dwellings built simultaneously. It has been found in large-scale enterprises in New Y ork City, in which the •full benefit o f low cost in purchase, construction, and maintenance is obtained, that at least 12 percent can be saved in annual operation and maintenance costs. Some cooperatives’ contracts have specified that any savings over a given amount or percentage o f the estimated con struction costs shall be divided equally between the contractor and the GENERAL CHARACTERISTICS 7 cooperative. In one case a crew o f expert building mechanics was hired on such a basis and was guaranteed annual employment.8 In a large project some economies in maintenance cost might be effected by the hiring o f all-round full-tim e workers to service all the dwellings, thus spreading the maintenance work evenly throughout the year. In that way the workers would have full-tim e employment, the individual dwelling would receive continuous service, and the in dividual owner would be spared the hiring o f workers tor sporadic jobs, at hourly rates set high in order to compensate fo r off-season unemployment. The National Housing Agency notes that continuous employment is to labor’s advantage and that in some cases “ incentive wage scales” as much as 30 percent below current hourly rates have been established in consideration o f guaranteed full-tim e employment.*4 Instead o f rents increasing steadily, it is the general experience that the monthly charges for cooperative housing decrease each year. Thus, a cooperative association on whose homes the original carrying charge is $50 a month may estimate that, at the end o f 20 years when all loans are repaid, the carrying charge may be as low as $22.50 per month. Cooperators are usually permanent residents. This eliminates a high turn-over in tenancy. Vacancies are a great waste and a cause o f added costs in any sort o f housing. A s cooperators take a greater inter est in their homes than do rental tenants, the property does not deteri orate so fast as it does under usual tenancy. The losses from rent receivable are extremely low in cooperative housing projects, as the member’s shares serve as collateral for his debts to his association. In some cases combined losses from vacancy and rent defaults have been less than 20 cents per room per year. Additional savings fo r the members are possible through contribu tions o f their time and labor. Although in apartment-house construc tion, much self-help is not feasible, on the erection o f individual dwellings many small jobs can be done by the members. Members have effected economies in cash costs by excavating for foundations and basements, doing rough concrete work, carpentry, painting, sanding and varnishing floors, etc., and in several cases even by building the entire dwelling on a labor-exchange basis. Many variants o f the selfhelp method are possible. In Tulsa, Okla., under a nonprofit arrange ment worked out by one o f the building-trades unions, F H A accepted 20 percent o f the property loan valuations in labor, and a local lending agency supplied a loan o f 80 percent o f the appraised valuation in cash. In a California town, FHA-insured mortgages also permitted the purchaser to make his own down payment (at least 10 percent o f the purchase price plus closing charges) in labor; this was a plan de veloped by private promoters, but is adaptable to cooperative methods. In some cases (fo r example, at Iona, Idaho, Penn-craft, Pa., and Nova Scotia) practically the entire construction was done by the members, working on their own and other houses in the project. Some or all interior and exterior maintenance by members is also feasible (see p. 29). » This experiment was carried on for nearly 3 years, being then interrupted by the w ar. Its sponsor states that the results were “ most promising” ; he emphasized, however, the necessity for “ very competent managerial and professional leadership.” 4 National Housing Bulletin N o. 2 : Housing Costs, W here the Housing Dollar Goes, W ashing ton 1944 (p . 3 0 ). 8 ORGANIZATION OF HOUSING ASSOCIATIONS ELIMINATION OF SPECULATION A variety o f legal methods may be employed to eliminate the element o f speculation. W ithout such provisions, the charge for the housing w ill be inflated by speculative profits taken by members selling their shares above par, or subleasing at more than the maintenance charges, and w ill operate to remove the housing facilities from the reach o f the moderate- or lower-income group originally to have been served. In eliminating the possibility o f incoming members’ buying at specula tively inflated prices, cooperative housing removes one o f the principal hazards prevalent in home ownership. I f a member is to forego poten tial gains, he is entitled to increased security against loss. This can be achieved partly by establishing reserves fo r this purpose, and partly by the fashioning o f sounder legal, financial, business, and administra tive policies than prevail under profit-seeking institutions. SAFEGUARDS FOR MEMBERS AND ASSOCIATIONS The member is safeguarded by incorporation o f the association, which thus limits his personal liability to the amount o f his share sub scription;5 by the terms o f his lease, which give him the right to occu pancy o f the dwelling he selects, as long as he is acceptable to the other members o f the association and fulfills the obligations set forth in his lease; by the opportunity, given him and the other members collec tively, to build up a reserve m the association to cushion against times o f depression or unemployment; and by the maintenance o f the long term value o f the property at a high level through a policy o f proper upkeep o f the buildings. I f the members so desire they may have the further protection o f inclusion in the mortgage o f a provision releasing individual dwellings from the mortgage as they are paid for, and o f insurance protecting the fam ily in case o f the breadwinner’s death or disability. The association and the property as a whole are safeguarded by retention o f legal ownership o f the property by the association, by con trol over the land and facilities devoted to community purposes, and by the execution o f members’ options, giving the association the right to repurchase a withdrawing member’s equity. Legislation pending in Congress would safeguard the association further by permitting exten sions o f mortgage loans, in case o f “ unemployment, economic condi tions, or misfortune” beyond the mortgagor’s control, up to a total o f 3 years. COLLATERAL COOPERATIVE ACTIVITIES Cooperation is not just a way to save m oney; it is the basis o f a better way o f life. Wherever people o f similar circumstances and interests live in a close-knit group, that fact makes possible many joint enterprises. Am ong them may be cited such activities as housekeeping service fo r working couples; repair o f radios, washing machines, re frigerators, and other electrical appliances; laundry service; nursery schools for the children and classes o f various kinds; commercial enterprises (stores, garages for automobile storage service and repair, bakeries, e tc .); joint purchase o f utilities (water, gas, electricity, tele phone, e tc .); and buying clubs for furniture, and electrical and other• • When his share subscription is paid in fu ll, he has no additional liability; his paid-in funds then represent his total liability. PREREQUISITES FOR SUCCESS 9 household appliances. The ground space (generally larger than in a comparable profit-making enterprise) can be utilized for lawns, gar dens, athletics, and recreation o f various kinds. Such activities can be financed through use o f surplus savings resulting from the monthly charges or through one or more share-capital associations form ed for the purpose. These collateral activities offer an opportunity hereto fore little utilized in this country, although their advantages have been widely recognized in Sweden and other European countries where many such services are provided in connection with housing projects. DISADVANTAGES Most o f the disadvantages o f the genuinely cooperative method, as regards housing, arise from members’ incomplete acceptance o f that method. It is important to recognize that membership in a cooperative housing association is for those who desire continued security o f occu pancy o f a dwelling rather than title to a particular dwelling. The person who is by nature a transient and a “ renter” is not a good pros pect; neither is the person who wants to invest in real estate for specu lative profit, since participants in a housing cooperative specifically waive the right o f making a profit on enhanced values-resulting from the association’s activities. A real disadvantage that may eventuate unless reserve “ cushions” are provided is that, under the accepted Rochdale practice o f retention o f title by the association, with the tenant-member merely owning stock to the value o f the equity required for his dwelling, all members sink or swim together. Thus, in a cooperative apartment house, one mem ber may be able to finance the purchase o f his own apartment, but the whole project may fa il (w ith consequent loss to all) if a sufficiently large proportion o f the members, through unemployment or other mis fortune, are unable to maintain their payments. This risk is greater i f all or most o f the members are engaged in the same industry than if the source o f income o f the members is more diversified. In a project consisting o f individual dwellings, severance o f one or more houses whose purchasers were solvent and current might be possible, but this might necessitate individual titles. D esirable Prerequisites fo r Successful C ooperative H ousing The M em bership Group Preferably, the prospective members o f the cooperative housing as sociation should have certain common interests which w ill help to give cohesion to the association. Many o f these interests can be developed in the process o f planning, building the houses, and living in the com munity being created. Generally it is desirable to have a fairly repre sentative sampling o f age and fam ily groups, which w ill tend to pro vide a varied supply o f housing accommodations adapted to the contin uing needs o f the group. I f almost all o f the members are young newlyweds, for instance, most o f the group w ill be needing larger ac commodations at about the same time, and w ill later cease to need them at about the same time. In a representative group, families needing larger accommodations may lease vacancies which occur in the larger quarters, and vice versa. This eliminates a rather important waste 10 ORGANIZATION OF HOUSING ASSOCIATIONS prevalent in single ownership o f homes (that o f expanding into what is later too large a house) and can be accomplished with very little expense and no loss in a well-planned cooperative or mutual develop ment. It is also highly desirable that the economic base o f the group be as diversified as possible. This is necessary to minimize the impact o f seasonal, cyclical, or industrial unemployment upon the association. N o form o f home ownership, either single or cooperative, should be regarded as financially sound, as long as the ability o f the owners to maintain their mortgage payments rests upon the employment fu r nished by a single industry. There may be some exceptions to this rule i f the industry itself is exceptionally strong and stable. Even in this situation, protracted strikes or lock-outs may have a devastating effect on the housing association. The facilities furnished by the association should serve a moderateincome group. Then, if members are forced to withdraw in times o f economic depression, there are potential new members from higherincome groups who would probably find the association’s housing within their economic reach. Housing associations serving the rela tively small proportion o f families in higher-income groups are likely to be hit very seriously by withdrawals in times o f economic depression. Tolerance o f the views o f individual members is important in a cooperative association. The organizers o f the housing association should keep in mind the traditional neutrality o f cooperative organi zations as regards extraneous divisive issues. From the viewpoint o f the individual member, a number o f factors should be considered in advance. H e should bear in mind that (1 ) the total cost should not exceed from l 1/? to 2 times the annual fam ily income, and the monthly charges for shelter rent should not exceed 20 percent o f the income, (2) the fixed charges continue, inexorably, in bad times as well as good, and generally at the same rates, unless reserves have been established which may be utilized to help meet the monthly payments, (3 ) he should have reasonably good prospects for an income steady enough to insure ability to make payments over a long period o f years, and (I ) he should have a reasonable likelihood o f being able to remain indefinitely as a resident. Prelim inary Exploratory Study P rior to the holding o f the first organizational meeting, a small group o f prospective cooperators should have studied the possibilities and difficulties inherent in the cooperative solution o f their housing problems. Though an association may adopt the essential principles o f cooperative housing, the variety o f legal, financial, site and building planning, construction, and income factors w ill very likely require that each group arrive at its own unique solution to the whole problem. Members o f this nucleus ought to have some conception o f the various closely related problems involved in carrying out a cooperative hous ing program, and possible solutions to these problems which would help furnish the members better, more secure, or more reasonably priced housing than would otherwise be possible. The degree o f suc cess o f a cooperative housing association w ill be influenced by each o f a great many decisions. A group working collectively must make wise SITE AND TYPE OF PROJECT 11 decisions, and carry on its business activities on a sound basis, or it faces the same reckoning as an ill-tidvised individual. The cooperative character o f the housing program is, o f itself, no guaranty o f success. Hence, it is advisable that this original nucleus include individuals with a grasp o f the various problems mentioned above, or if that is not possible, that such persons be available in an advisory or consultative capacity. Prospective members should be queried to ascertain the number o f persons in the fam ily, the type and size o f housing desired, the average cost they could meet, and preferred location. Preliminary group dis cussions would am plify the data on these points and bring about a meeting o f minds. A primary point to be settled would be a choice between apartments and individual houses. A large project could combine the two, but might not be possible for the average group. Considerations o f Site and T ype o f P roject A t an early stage a temporary housing association should be formed and one or more committees appointed to investigate and report on land sites if new buildings are to be erected, or to find desirable build ings if existing structures are to be purchased and remodeled. These preliminary investigations should be made with discretion, to prevent a speculative mark-up in price by the owner or his agent. It is important that care be taken to buy property whose value has not been inflated and whose future character, from a residential and social standpoint, is reasonably secure. The advice o f experts on realestate values and on regional and site planning is desirable at this stage. A fter a satisfactory site has been found, the title should be searched (this w ill reveal any existing mortgages, liens, or assessments against the property). The committee should also inquire as to all the types o f taxes (local, county, and State) to which the property w ill be sub ject and any contemplated improvements in the neighborhood that might result in additional levies. The association should then incor porate under a suitable law, the required shares should be paid in, and the purchase com pleted; in this process it is desirable that the services o f an attorney be obtained. Purchase o f Existing Building In buying an existing building, costs can usually be determined rather accurately in advance, which in turn permits very close esti mation o f the initial investment and the monthly charges. This in form ation should be obtained by a small investigating committee, fo r fu ll and detailed report to the prospective members. However, pur chase o f a building erected or being sold under profit auspices should be undertaken only when the members o f the association are convinced that the purchase offers a good long-term value for the cost. Inexperi enced buyers need to be cautioned not to overlook the possibility that m ajor repairs and replacement o f plumbing, heating, and wiring sys tems may be impending in an old building offered for sale. Such repair costs should be taken into consideration in arriving at a purchase price. Purchase and renovation o f existing buildings from which profits have been eliminated by obsolescence or depression constitute 684613°— 46------ 3 12 ORGANIZATION OF HOUSING ASSOCIATIONS an economic gamble unless the whole o f a block or neighborhood can be acquired (which requires greater financial strength than the aver age housing cooperative can muster). In any case, appraisal by a disinterested expert is desirable. Purchase at an unduly high price w ill handicap the association throughout its life, and may be a m ajor factor in determining its ultimate success or failure. I f the members are satisfied that the building meets their needs and is reasonably priced, they may then proceed to purchase. Suburban Residential Projects In case the association plans to buy undeveloped or partially devel oped land in a suburban location, research should include prospective costs o f the many factors entering into the total eventual cost o f the housing. A knowledge o f these costs and o f prevailing and long-term land values w ill help in setting the association’s budget for land in its various stages o f development. In some instances it may be possible fo r a group to buy lots sold at tax foreclosure, or a subdivision avail able at a reasonable price. This, however, may become a serious handi cap in progressive planning o f the site development, and could con ceivably subject the cooperative housing association to the severe obsolescence resulting from previous poor planning. In any event, a land-purchase committee should be form ed to study and investigate potential sites. In large urban areas where a large number o f sites might be under consideration, several such committees m ight be formed. Many factors such as suitability o f land fo r hous ing use, its cost, the cost and availability o f transportation, schools, community and shopping facilities, water, electricity, and perhaps gas and sewer connections, the rates o f assessment and taxation, and the robable costs o f roads may enter into site-selection considerations.6 'he number o f families to be served by the association, and their land requirements, the zoning requirements relating to land use, plus any land reserved for community use or for expansion, w ill affect the amount o f land to be bought. It is likely that land costs w ill rise in the vicinity o f any new development, cooperative or otherwise, as speculative landholders see the possibility for sale o f land for resi dential or commercial use. It is therefore desirable, at the beginning, to select a site suitable for the probable maximum size and long-term needs o f the group, if these can be determined. In many cases, it may be desirable not to improve the complete site immediately, but to con centrate on that portion necessary to fulfill the needs o f the imme diate members plus a small expansion. Such partial development may have the slight disadvantage o f imposing smaller-scale developmental operations, with possibly a slightly higher unit cost, but the expense o f making improvements for all o f the site w ill be a very heavy burden on the original members. The continued expense o f interest and in creased taxes on the improved and subdivided land have bankrupted many land speculators. In connection with the development o f outlying land, it should be borne in mind that the advantage gained from lower initial tax rates w ill be transitory; when the area attains urban density o f population,• ? • Costs may sometimes be cut where land can be obtained at farm -land rates; in such cases the housing cooperative must be able to undertake the subdivision o f the land, lay-out of streets, installation of utilities (water, sewer, gas, electricity), SITE AND TYPE OF PROJECT 13 urban services w ill be demanded and urban tax rates become necessary. Also, the fu ll cost o f community improvements (water supply, sewer system, school buildings, etc.) must be borne by the local property owners, o f which the cooperative would ordinarily be the largest, whereas in adjoining city property a large part o f the improvement cost w ill already have been paid. Outlying property within city lim its usually is worth serious consideration. It has city services (fire and police protection, etc.), city rather than suburban utility and transportation rates, protection o f city zoning laws against the intrusion o f shanties, hog farms, night clubs, and the like; although new investment is needed for site improvements such as sewer, water, paving, etc., these w ill be used in connection with parts o f the system already installed and probably already largely paid for, such as water source, pumping and filtration plant, and sewage-treatment plant. I f an option is obtained on the approved parcel o f land, sufficient time should be allowed fo r com pleting the incorporation o f the asso ciation, the registering o f securities (which may be required under State law s), their sale to the members, and perhaps a promotional campaign to enlist sufficient members. It is conceivable that certain landowners might be found who would be so friendly to the idea o f assisting in the development o f a cooperative housing project that they would be w illing to handle the sale in a manner wholly acceptable to the association. Urban Redevelopm ent Projects The initial steps o f a third type o f cooperative housing endeavor, utilizing urban redevelopment laws, would be more complicated. The steps involved may be illustrated by the experience o f the first co operative housing project in the United States to proceed under urban redevelopment laws—i. e., the East River Cooperative Apartments in New Y ork City. _ The New York State Redevelopment Companies A ct permits certain types o f investing institutions to own 100-percent equities in redevelopment projects; thus, the investing institution may engage in some o f the preliminary work. In the association under discussion a waiting list o f several hundred applicants for apartments in an earlier project was circularized on behalf o f the board o f sponsors fo r the new development; o f these, a sizable number filed applications fo r the new project and made the required $100 deposit to indicate their good faith. A preliminary agreement was arrived at among the leading spirit in the enterprise7 (on behalf o f the applicants and sponsors), the representatives o f the savings banks w illing to make the 80-percent first-mortgage loan, and the city o f New York. The agreement established a 4-month period during which the attempt was to be made to obtain a large percentage o f the tenant-cooperators’ stock subscriptions as well as subscriptions from such other civic or cooperative agencies as m ight be w illing to assist in the financing o f the new development. W hen approximately two-thirds o f the total subscriptions were in hand, the investing banks proceeded to incor porate the redevelopment company and make application fo r city ap proval (prelim inary studies o f the site and building plans must be prepared fo r submission to the city before final approval is granted). 7 A man o f 20 years' experience in cooperative housing. 14 ORGANIZATION OP HOUSING ASSOCIATIONS The interest o f the investing banks w ill eventually become the firstmortgage loan. The redevelopment technique, as above described, offers many op portunities fo r urban cooperative housing associations, but is the most difficult o f all form s. Since it is essential that such projects be undertaken on a scale which re-establishes the desirable character o f the community, it seems probable that cooperative projects o f this type would have to be promoted in connection with existing coopera tive, lim ited-dividend, philanthropic, public, or mutual housing enter prises. Such agencies have in most cases a surplus o f applicants for housing, which could be referred to the cooperative association. They also have a background o f business and administrative experience which qualifies them to undertake this com plex approach to coopera tive housing. The redevelopment legislation usually provides a method for the acquisition o f the site, through condemnation i f neces sary, and in some States permits w riting down the charge fo r the land to that consistent with its residential or apartment-house use.8 Sometimes the assistance takes the form o f a tax exemption on the increased value o f the redeveloped area fo r a fixed period o f years (up to 25 in New Y ork ). In most cases, some public supervision is provided, and an upper lim it is set on the rentals to be charged. The possibilities o f utilizing the urban redevelopment legislation, State and Federal, are worth investigating for any group which wants to rebuild a “ slum” area to provide good housing for a moderate-income group. Mutual H om e Ownership A fourth approach to group housing is provided by the technique o f mutual housing. A fter the inauguration o f the defense housing program a plan was formulated whereby permanent housing projects could be acquired, after the end o f the emergency, by the residents under a mutual owner ship arrangement. The plan now operates as follow s: In a project the residents in which vote for mutual ownership, a Mutual Ownership Corporation is formed. It then takes over the operation o f the project fo r a transition period o f 2 years, with an option to purchase at the end o f that time. I f , at the end o f the period, the association exer cises its option, a purchase agreement is drawn up giving it 45 years in which to amortize the sale price (fixed by joint appraisal by an appraiser appointed by the F P H A and one appointed by the associa tion) , by regular monthly payments including 3-percent interest on the unpaid balance. The tenant-member in turn receives a contract from the association, entitling him to perpetual use o f a dwelling unit; he makes a monthly payment to the association covering his share o f the operating expenses and o f the total purchase price. The members are expected to pay off their debt in 30 years, and at a some what higher rate o f interest than that paid by the association. The margin provided by this and by the tenant’s relatively larger amorti zation provide a reserve cushion from which the association can buy up the equity o f members who must withdraw and can assist members over periods o f hardship.* * The market price o f blighted property is ordinarily so much greater than a reasonable use value that an urban redevelopment project would start with an excessive debt burden unless a large part o f the deflation loss were m et from public funds. SITE AND TYPE OP PROJECT 15 Eight projects were built with the idea o f their postwar disposal under the mutual housing plan. In six o f these, mutual ownership corporations have been form ed; the other two are operated by F P H A managers. O f the first six, the 2-year transition period has elapsed in two and negotiations are under way for a purchase contract. The mutual housing plan is also applicable to several hundred other permanent war housing projects built under the Lanham A ct, which must be disposed o f within 2 years after the end o f the war emer gency.9 A mutual housing association, as a consumer body, would be given preference over groups or individuals offering to buy the project for investment purposes. Its application must be signed by occupants or prospective occupants o f the dwellings representing at least 25 percent o f the total units in the project. T o be eligible to purchase, the association must demonstrate that the occupants or prospective occupants who are members o f the association equal at least two-thirds the number o f dwellings in the project. The sale regulations101require a cash down payment o f at least 5 per cent, with the balance secured by a mortgage for no longer than 40 years and bearing interest at the rate o f Sy2 percent per year.11 I f the tenants are not interested in buying the accommodations, they may be offered to a local housing authority, a limited-dividend corporation (which conceivably might also be a cooperative housing association), and finally to private bidders on sealed bids. I f the appraised value is excessive, the tenants might be able to buy the property at public sale. Advantages o f the plan, from the purchasers’ point o f view, are that a down payment o f 5 percent or less is required,12*all the initial capital is furnished by the Government, and all the planning and construction are done by it; the members o f the association are fam iliar with the property, know the employment situation in the neighborhood, and know within close limits the purchase price, in vestment and monthly charges. It is possible, also, that under tenant administration the costs could be held at a lower level than under public housing.18 This mutual-ownership type o f approach has received a great deal o f support from organized labor as one solution for furnishing new housing for working-class groups. Postwar housing legislation (S. 1592) introduced by Senators Wanner, Ellender, and T aft would make specific provisions for financing mutual cooperative housing associations or nonprofit corporations building small houses for the middle-income groups not served by public housing or private enter prise. The text o f the portion that relates to mutual housing is as follow s: • Details regarding the mutual-housing plan m ay be obtained from the Federal Public Housing Authority, W ashington 25. D. C ., or the Director o f the Research and Inform ation Service of the Cooperative League o f the U .S .A ., 726 Jackson Place, W ashington 5, D. C. 10 Manual o f Policy and Procedure, 3555:2 (N ational Housing Agency, Federal Public Housing Authority, W ashington, 1946). 11 It is probable, however, that these term s w ill be changed to conform to the provisions o f the General Housing A ct of 1945. 12 However, one cooperative housing expert regards this as a disadvantage from the associa tion’s standpoint, because members with only a small stake (or none) in the enterprise have less concern in its success. It is his belief that the member’s equity should in no case be less than 20 percent. 18 Testimony before the Senate Subcommittee on Housing indicated monthly per-dwelling oper ating costs of $5.14 and $5.19 in two mutual housing projects, as against $10 in a nearby public housing project. 16 ORGANIZATION o f h o u s in g a s s o c ia t io n s Mutual Ownership and Rental Housing (A ) A mortgage with respect to a project to be constructed in a locality or metropolitan area where, as determined by the Administrator, there is a need for new dwellings for families of lower income at rentals comparable to the rentals proposed to be charged for the dwellings in such project which without the insurance provided hereby cannot adequately be met by privately financed new dwellings currently produced in such locality or metropolitan area may involve a principal obligation in an amount not exceeding 90 percentum o f the amount which the Administrator estimates will be the value o f the project when the proposed improvements are completed; and (B ) A mortgage with respect to (i) a project o f a nonprofit mutual ownership housing corporation the occupancy o f which is restricted to members o f such corporation, (ii) a project constructed by a nonprofit corporation organized for the purpose of construction of homes for members o f the corporation, or (iii) a project undertaken by a mortgagor coming within the provisions o f paragraph numbered (b) (1) o f this section to meet a need (that the Administrator finds would not otherwise be met) for new dwellings for families o f lower income in the locality or metropolitan area at rentals comparable to the rentals proposed to be charged for the dwellings in such project, may involve a principal obliga tion in an amount not exceeding 95 percentum o f the amount which the Adminis trator estimates will be the value o f the project when the proposed improvements are completed; * * * except that with respect to mortgages insured under the provisions of the second proviso o f paragraph numbered (2) o f this subsection, which mortgages are hereby authorized to have a maturity o f not exceeding forty years from the date of the insurance o f the mortgage, such interest rate shall not exceed 3% per centum per annum. Mutual housing, as usually propose#, utilizes a Government housing agency or local housing authority to handle the numerous technical aspects o f planning, site acquisition, and construction o f dwellings. The buildings are sold to the tenants’ association under the mutualownership plan. The advantage o f this approach is the greatly les sened burden upon the initiative and ability o f the leaders o f the mutual association, as compared to a cooperative association which must make its own decisions from start to finish. Considerations R elating to Com m unity and A rchitectural Planning Community Planning One great advantage o f cooperative or mutual housing is the possi bility o f achieving a well-planned community. T oo often, in the past, residential design has had little or no relation to the neighbor hood in which the dwelling should be an integral part. In this plan ning o f the community, a cooperative may gain an increased long-term value fo r its property, which is seldom possible under usual land subdivision with each property held in separate, single ownership. In connection with the development and planning o f the site and community, forward-looking architectural and engineering talent is essential. The choice o f the architect best qualified to undertake the particular project is one o f highest importance; fo r that reason it is important that the association have consultation service prior to his selection. One association also had its committee talk with 8 or 10 architects before final choice was made. In large-scale projects the provision o f space fo r a community shop ping and service center, owned by the association, should be part o f the advance planning. In this way the cooperative w ill be able COMMUNITY AND ARCHITECTURAL PLANNING 17 to insure architectural harmony, adequate facilities, and control over the character o f commercial activities, which otherwise might develop along altogether unsuitable lines. Building Design In the design o f the building or buildings, several factors deserve serious consideration. The relatively near future promises continued development o f standardized, mass-produced building elements, with increased processing and some degree o f increased assembly o f mate rials at manufacturing plants. Prefabrication o f complete houses is entirely practical, but its cost-saving advantages are not yet estab lished to the satisfaction o f numerous authorities. Sound architec tural planning for moderate-income families w ill take advantage o f new materials and assemblies when they are serviceable and reason ably priced. Custom-built housing w ill continue to be out o f reach o f all but the higher-income families. In view o f the prospect o f irregular or inadequate supplies o f some o f the basic building mate rials, full consideration should be given to utilizing local or readily available building materials, incorporating them into a well-planned structure. W ith the increased cost o f postwar construction, associations seek ing to serve moderate-income families might explore the possibilities o f construction, site-improvement, and maintenance economies to be attained in various types o f m ultifamily dwellings. The duplex or semidetached unit might serve families unable to afford a single, free standing residence. A properly planned row house for from 4 to 8 >families may offer economies o f construction, utility installations, and heating which deserve serious consideration. Such m ultifamily dwell ings can provide privacy and recreation facilities comparable to the single-fam ily dwelling. In an association in which there may be a hundred or more families needing diverse accommodations, the development might include sin gle-fam ily and duplex residences, row houses, and perhaps some apart ment units. Such an arrangement offers the possibility o f consolidat ing portions o f the site fo r recreational, agricultural, or community use in a manner not possible under individual ownership, while realiz ing significant economies on roads, utilities, building construction, and maintenance. Zoning laws have seldom contemplated this method o f utilizing a site, and frequently make no provision for such a mixed development. However, if the project would house no more families in the given area than would have been housed under prevailing zon ing, approval could probably be obtained from municipal authorities. Much might be said on the subject o f architectural design. Sound planning and forward-looking architectural design are important fac tors in determining the long-range value o f both the individual dwell ing and the community. Good architectural design utilizes today’s building materials in a straightforward, truthful, and functional manner, to create buildings well suited to serve their intended pur pose. The use o f available or native building materials, site and plan considerations, the variety o f types and sizes o f dwellings needed, and other design and construction requirements or limitations should give each development a character o f its own. 18 ORGANIZATION OP HOUSING ASSOCIATIONS Construction Operations The prevailing practice in the construction o f residential dwellings is for a speculative (or “ operative” ) builder to buy a tract o f land, subdivide it into lots, and construct individual dwellings for sale at the highest price the market permits. This builder uses stock plans and usually employs some o f the tradesmen directly, but often he awards most o f this work to subcontractors. This type o f operation has tended to put land subdivision and construction under one profitseeking entrepreneur, instead o f the two which form erly existed, and in so doing has probably resulted in a slight, cost reduction to the ultimate consumer. I f the owner has some control in the construction program, an architect is usually commissioned to prepare the working drawings and specifications for the buildings to be built. These are then sub mitted to such acceptable general contractors as may be interested in bidding on the work provided in the plans and specifications. In this process, the contract is generally awarded to the general contractor who puts in the lowest lump-sum 'bid. The owner is thus enabled to know his total cost in advance, and the contractor guarantees the price. O f course, if plans or specifications are not sufficiently detailed or complete, the final cost may turn out to be considerably higher than the contract price. In competitive bidding, a contractor cannot afford to include in his bid any work or items omitted from plans or specifi cations, regardless o f how essential the omitted items may be. This means that the owner w ill have to pay extra for such work. Likewise, a contractor, who finds that his original bid w ill not enable him to make the hoped-for profit, is likely to try to make up fo r his miscalcu lation by raising his price on the extras. The best way to avoid extras is to employ a competent and conscientious architect. The contractor’s profit depends upon how cheaply he may be able to buy the specified materials, how much his labor cost w ill be, and the extent o f possible contingencies which would increase his costs. A general contractor, in bidding on an early postwar job, sees prices rising and increased labor costs or possible strikes in the offing. Most contractors w ill not have current construction costs to assist them in their bidding. Consequently, a general contractor in bidding on a construction job w ill “ play safe” in his estimates o f materials costs, labor costs, and possible increased expense which m ight absorb his prospective profits. In addition to this, each o f the subcontractors who is required to give a lump-sum bid on his portion o f the work goes through the same process o f setting his labor and material esti mates high enough to cover the worst situation that he thinks at all likely, and still pay his overhead and profit. It is probable, in this situation, that lower bids are likely only when this vast risk element is greatly reduced by competitive pricing o f materials, proven output o f labor, and the elimination o f some o f the need for such sizable contingency funds to offset prospective price increases. During the rising market o f the early forties, many general contractors would bid on construction jobs only on a cost-plus-fixed-fee basis. This eliminated the risk o f the guaranteed price inherent in the lump-sum bid, provided for a specific payment to the contractor for overhead and profit, and virtually put the contractor on a pro COMMUNITY AND ARCHITECTURAL PLANNING 19 fessional rather than commercial basis. Under a competent and faithful contractor, such a contract would probably furnish greater dollar-for-dollar value than a lump-sum contract, but since the total price is not guaranteed the owner assumes a greater risk and should establish a contingency fund fo r this purpose. However, the con tractor, who is assuming less risk, is generally w illing to take such a contract on a narrower margin than he would a lump-sum contract. This cost-plus-fixed-fee method o f building does not bring about the cross-interests o f builder and owner which exist in the'usual lump sum contract. Cards and figures are face up on the table, and the contractor has no incentive to cut quality in order to gain additional profit. It should also be recognized that if the fee is fixed at a per centage o f cost rather than at a definite amount, the contractor may be less diligent in his effort to keep costs down than the owner has a right to expect.^ Frequently, in residential construction, there are architects who have constructed residences on the basis o f supervising subcontractors. Such an architect acts on behalf o f the owner, takes and tabulates the bids, recommends to the owner the acceptance o f the desirable con tracts, schedules the work, supervises (not superintends) the work manship and the materials, approves bills for payment, and generally handles all the details o f construction. Most subcontractors in resi dential work have the equipment they need for their part o f the work. Under this plan the architect does not guarantee the price o f the build ing, and the owner consequently assumes a greater risk, but with the prospect o f a considerably lower cost; in this case also a contingency fee should be established fo r use i f any o f the costs overrun bids or estimates. Under these tw o arrangements above cited, the architect or con tractor becomes, to a far greater extent than is usually the case, the professional servant o f the owner. Thorough Utilization o f Cooperative Techniques W ith the high construction costs in prospect for the latter half o f the forties, it is important that dwellings erected during this period shall not have a monthly carrying cost too greatly above that o f pre war houses. Dwellings on which these monthly charges are greatly in excess o f other sound housing o f good design w ill be at a competitive disadvantage when vacancies begin to appear in essentially competi tive housing. It is therefore important that as “ good buys” as possible be made at each stage o f creating this new housing. The principal decisions w ill relate to land purchase, land planning and improve ments, building design, construction methods and costs, financing, maintenance, and administration. Since, in a consumers5cooperative housing association, the users o f the dwellings w ill have gained a degree o f control o f the housing process which they have not ordinarily had, it is highly desirable that they utilize this control w isely to bring the best housing possible within the reach o f moderate-income families previously not adeqUdtely served by profit-seeking enterprise. The economies or gains from utilizing cooperative principles for just one aspect in the procurement o f housing, such as land subdivision, or administration, are likely to be relatively small. It is highly desirable 684613°— 46------1 20 ORGANIZATION OP HOUSING ASSOCIATIONS that cooperative housing associations use the techniques o f consumers’ cooperation in as many o f the phases o f this process as have promise o f furnishing better housing for the money. Otherwise, dwellings built in the early postwar years may be priced entirely out o f reach o f the moderate-income families seeking them. Starting the A ssociation Incorporation o f Association The type o f development planned may have a great deal o f bearing on the type o f incorporation which is most desirable. F or a suburban residential type o f development, incorporation under the local coopera tive statute might prove to be entirely satisfactory if the terms o f the law are broad enough to cover cooperative housing associations.15 In the event that the State in which the group expects to operate has no cooperative law or an inadequate one16a possible alternative is incor poration under the District o f Columbia Cooperative Law, whose terms are broad enough to permit incorporation under it by cooperative groups in other States; in such cases, however, an attorney should be consulted in order to ascertain any disadvantages that might accrue, under State laws, to associations o f such “ foreign” incorporation. Many cooperative housing associations may qualify for incorpora tion under a limited-dividend housing law,17 or in some cases an urban redevelopment law.18 In most cases o f this sort, there are specific benefits, generally in the form o f partial tax exemption or assistance in site acquisition in slum or substandard areas, which may be o f ma terial value to the association.^ The supervision by the State’s housing director may require furnishing detailed inform ation from time to time about the association’s fiscal activities, but such limitation or regulation should not be onerous to a genuine cooperative housing association. Associations incorporating under housing laws must provide fo r their own cooperative operation, taking care o f this as far as possible in their articles o f incorporation and in their bylaws. Even though associations incorporating under the housing law may function as cooperatives, most State laws prohibit inclusion o f the » The consumers* cooperative laws o f Maine, New Mexico, New Y ork, N orth Dakota, Pennsyl vania, Verm ont, and the District of Columbia specifically authorize building; those o f the first four also authorize operation o f buildings, and that of Verm ont authorizes any services in connection therewith. The carrying on of “ any lawful business” is authorized in Alabama, California, Colorado, Florida, Michigan, Nebraska. Oregon, W ashington, and W isconsin (in W isconsin with certain exceptions not applicable here). Kansas law permits cooperatives to carry on “ any business or industrial pursuit,” Massachusetts any business, Montana any branch o f industry, and Idaho any business not conducted for pecuniary profit. In Nevada the types o f business are not specified, but the association is authorized to “ carry on any and all operations necessary or convenient in connection with the transactions o f any of its business.” The District o f Colum bia law authorizes all types of services for the benefit of the members as ultimate consumers. i« There is no consumers* cooperative law in Arizona, Delaware, Georgia, Indiana, Louisiana, Maryland, New Hampshire, Rhode Island, Texas Utah, W est Virginia, and W yom ing. The types o f business specified in Illinois, Missouri, and Ohio are not broad enough to cover housing co operatives, and in Tennessee the single section providing for cooperatives merely authorizes the incorporation o f “ non-profit cooperative associations.** In New Jersey, housing is not included in the pursuits authorized; the enumerated powers o f a cooperative association formed under the act include those o f “ owning, leasing and improving real estate and erecting buildings,** but whether this would be construed to authorize housing activities is uncertain. It also seems doubt ful that cooperative housing associations which construct (m anufacture) dwellings, could qualify under the “ manufacture** clause of the Arkansas, Connecticut, Iowa, Kentucky, Minnesota, North Carolina Oklahoma, South Carolina, South Dakota, and V irginia laws. it Such’ laws are on the books in at least 13 States (Arkansas, California, Delaware, Florida, Illinois, Kansas, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, South Carolina, and T cxsls) • 18 About 20 States have such laws. (See Comparative Analysis o f the Principal Provisions o f State Urban Redevelopment Laws, published by National Housing Agency, 1045.) STARTING THE ASSOCIATION 21 word “ cooperative” in their name if they are not incorporated under the cooperative statute. Incorporation under the State nonprofit corporation law (if such exists) may be worth investigating. In some States the terms o f these laws may permit incorporation by genuine consumers’ cooperative societies, which operate as a type o f nonprofit enterprise,1 8 19 and also by mutual housing corporations. Incorporation should precede the purchase o f the property, as it usually prevents individual liability for the debts or obligation o f the association. In an incorporated association each member is, in the m ajority o f States, liable only to the extent o f the total amount (paid or unpaid) o f his share subscriptions,20 whereas in the absence o f incorporation he is liable for the fu ll amount o f the association’s indebtedness. Articles and Bylaws o f the Association The articles o f incorporation establish the legal status o f the asso ciation. The law under which incorporation takes place w ill specify the essential information which is required in these articles. Although most o f the cooperative statutes specify what the articles must con tain, their final drafting is a job for an attorney fam iliar with laws governing cooperative corporations. It is generally easier to amend the bylaws than the charter (articles o f incorporation). F or this reason, cooperatives sometimes specify in the charter certain provisions considered essential to assure sound cooperative functioning, even though the law may not require them to do so. This is particularly worth considering if incorporation must take place under a law which does not make adherence to consumer cooperative principles mandatory. It also offers some protection against hasty, ill-considered changes in the bylaws, since no bylaw amendments may be adopted which are in conflict with charter pro visions. However, the charter should not be so detailed that it w ill prevent the amendment o f bylaws in minor matters as may be found expedient for reasons o f practicability. The bylaws21 are the common rules governing the relations o f the members, their officers, and their employees. They bind the members together as an association. The bylaws should contain all the co operative provisions applicable to the association, whether or not they are in the articles o f incorporation. The chief points to be covered in the bylaws are the follow ing : Name and location of association. Purpose. Membership.—Rights, limitations, duties, and responsibilities. Fiscal year. Capital.—Total amount authorized, interest to be paid, value of the share, how subscribed and paid, how transferred, etc. Meetings.— Date, how called and conducted, quorum, special meetings, etc. Directors and officers.—Number, how elected, duties, disqualifications of, vacancies, meetings, etc. Voting. Surplus savings.—How distributed. 18 The Michigan cooperative law makes specific provision fo r nonprofit enterprises. 20 He may also, o f course, lose what he has already invested if the association should liquidate at a tim e when its debts exceed assets. 21 See Appendix A (p . 42) for suggested bylaws. 22 ORGANIZATION OP HOUSING ASSOCIATIONS Management. Committees.—Designation of and duties. Bookkeeping and auditing. Miscellaneous provisions, such as amendments to bylaws, dissolution of asso ciation, etc. Bylaws have certain limitations as to the degree to which they bind the members. Provisions relating to the transfer o f stock must in most States be printed on the stock certificate to be binding. Bylaw provisions are not adequate to require that a member who owns (i.e., has title to) his dwelling (as is the case in some associations only partially cooperative) shall offer it to the association before trying to sell it to an outsider or nonmember; in such case an option must be executed. The provisions o f the lease also are not covered in the bylaws. In these latter two cases a separate legal instrument must be drawn. Financing the Enterprise Initial Expenses The expenses connected with the purchase o f the property are gen erally five in number, as follow s: 1. Incorporation charge; this varies in the different States (in New Y ork State it is $40). There w ill also be attorneys’ fees in connec tion with incorporation22 and purchase o f land and other real estate. 2. Payment to close the contract o f sale, usually an amount ranging from one-twentieth to one-fifth o f the purchase price must be paid. 3. Fee for examination and insurance o f the title. This also varies in amount but is usually not large. 4. Payment to close the title. The remaining amount o f the contract price must be paid in full, or such other payments must be made as are arranged fo r directly with the owner. 5. Commission on the sale o f property. I f a real-estate agent is employed, there w ill be a commission for his services; generally the upper lim it is regulated by the State law or standard real-estate practice. The National Housing Agency estimates the closing fees and com missions at about $100 on an individual $5,000 house. The “ closing charges” fo r a single purchase o f a group o f buildings could be re duced very materially from this figure. Mortgage Procedures A variety o f mortgage procedures is open. The association may elect to obtain (1) a single large.mortgage, with minimum amortiza tion over a long period, (2) a very small mortgage with rapid amorti zation, or (3) a combination o f first and second mortgages. A ll have advantages and disadvantages. O f late years the widespread use o f the single long-term, low-interest mortgage has largely eliminated the older method o f placing both first and second mortgages against the property. This first and only mortgage may run as high as 66% to 80 percent o f the value o f the w Assistance on incorporation may be obtained from the nearest regional cooperative league or wholesale association. For list of such organizations, see Appendix F (p . 5 9 ). FINANCING THE ENTERPRISE 23 property when made by banks or insurance companies. The exact amount w ill depend upon applicable legislation controlling the lender, the method o f appraising the property, and the willingness o f the lender to make the maximum loan. The Federal Housing Administration w ill insure mortgage loans to cooperative housing associations only i f they can qualify under the title applying to rental housing. It has been unwilling to insure the mortgages on the individual-dwelling type o f cooperative development on a basis comparable to the terms the individual home owner could get. Nevertheless, it is possible for a cooperative to obtain F H A insur ance on a blanket mortgage covering a number o f dwellings, the title to which is held by the cooperative association. Legislation introduced in the U. S. Senate in the fa ll o f 1945 pro vides fo r the insurance o f mortgages o f mutual housing associations, or nonprofit corporations financed on a long-term low-interest basis. I f this legislation (previously mentioned) is enacted, suitable financ ing would probably become available fo r building new cooperative and mutual housing. Another potential source o f mortgage financing is that o f the sav ings and loan associations. The United States plan, in use by some savings and loan associations, provides fo r prepayment i f desired by the mortgagor, establishes cushions or grace periods in the case o f default, and calls fo r a decreasing interest rate as the principal is reduced. The maximum mortgage may be lim ited, requiring separate mortgages on each parcel o f property. Mutual savings banks and insurance companies are also potential mortgagees. Trust funds or endowments or other sources o f capital might be available fo r mortgage financing o f cooperative housing enterprises. However, each o f these sources o f funds has certain lim i tations which affect the mortgages upon which it can make loans. Ideally, a mortgage-financing system fo r cooperative housing asso ciations would provide fo r a maximum debt equivalent to 90 to 95 percent o f the original appraised value. This mortgage should estab lish the maximum indebtedness permitted at any time during its life, based on a long-term depreciation factor. This schedule might be the monthly schedule o f balance due, based on a 25- or 30-year level annuity or on a uniform amortization schedule, or a combination o f these, depending upon whatever maximum loan the mortgagee was empowered to make. In order to increase the security o f both the borrower and the lender, this ideal mortgage-financing system should make provision for the exigencies o f the business cycle. T o be specific, it seems likely that within the life o f such a mortgage there w ill be one or more periods o f economic depression in which the incomes o f home owners w ill be so drastically curtailed as to prevent their keeping abreast o f pay ments, with the result that, under prevailing formulas o f ownership and mortgaging, there w ill be widespread foreclosures. The proposed General Housing A ct o f 1945 (S . 1592) would meet such a situation by providing for specific extensions o f the loan up to a total o f 3 years. W ith the privilege o f unlimited prepayment o f mortgage indebted ness, and the above-mentioned schedule o f permissible mortgage debt (permitted by F H A in its Letter to Mortgagees o f September 6,1944) it would be possible fo r cooperative housing associations to build up a 24 ORGANIZATION OF HOUSING ASSOCIATIONS reserve or cushion between the actual debt and the debt permitted. This could be done in several ways. The stock subscription required o f each member might be 5 to 10 percent greater than that actually required under the financing. The mortgage would be taken in the maximum amount, perhaps as much as 90 to 95 percent o f the value. However, the additional paid-in shares would be used to prepay the mortgage and to develop this emergency cushion immediately. This prepaid reserve should be further increased by scheduling the amortization payments over a period 5 to 10 years shorter than that permitted by the m ort gagee. A sizable saving in total interest cost is possible through the more rapid amortization.23 The Federal Housing Administration is also w illing to have the fo l low ing provision incorporated in FH A-insured m ortgages: In the event o f a prepayment o f principal, no default shall be construed to exist by reason o f the nonpayment o f the principal portion o f any monthly pay ment thereafter due so long as the actual unpaid principal balance o f the debt is not more than such balance would have been without taking into account such prepayment or nonpayment. I f it is within the financial ability o f the members, their 'payments to principal should be made on a uniform m onthly basis, amounting to 4 to 5 percent per year. Although this has the slight disadvantage o f increasing the payments during the first 40 percent or so o f the loan over the “ uniform interest plus amortization payment” popularized by F H A , the uniform-amortization schedule greatly reduces the total interest payments made in repaying the loan. Under the level-annuity plan, the payments on principal do not keep pace with depreciation in the early years o f the mortgage, while the total monthly charges in the later years o f the loan may exceed the rental value o f the dwelling. Beduction o f period o f amortization is especially important in a group containing some middle-aged members. It is essential that amor tization be completed by any fam ily before the retirement o f its prin cipal earner, as continuance o f amortization payments w ill ordinarily be a serious burden fo r families dependent on retirement income.24 Under the system o f uniform monthly payments on principal, the actual costs drop each month as interest is paid on a dwindling amount o f debt. In the last years o f the loan, the interest payments become very light, keeping the carrying costs o f the dwelling well within its pros pective rental value. It is also appropriate to incorporate in the m ortgage a provision fo r the release o f particular dwellings from the blanket mortgage as the debts against these properties are paid off. Such prepayment and release would be subject to approval by the mortgagor and to appraisal by the F H A o f the property involved, at the time o f release. The methods fo r handling these prepayments, or complete payments o f the mortgage debt, are dealt with in more detail on page 35. 23 One cooperative housing expert doubts the feasibility o f the prepayment device, believing that prepayment provisions will not readily be accepted by the usual financing agencies. How ever, in view of the patent advantages to members and mortgagees alike, as a safeguard against times o f hardship, the adoption o f the prepayment plan is advisable if at all possible. 24 This difficulty would be overcome to some degree if the association makes provision allowing such fam ilies to exchange their dwelling for another more suited to their dwindling size and fam ily income. Nevertheless, a very long amortization period is a real risk. FINANCING THE ENTERPRISE 25 Initial Financing M EM BER S9 SU BSCR IPTIO N S FOR SH ARES The cash fo r the equity financing (i.e., the ownership interest above the mortgage debt) is raised through the purchase o f shares by the members o f the association. A subscription agreement25 is signed by each tenant-member, binding him to the purchase o f a stated amount o f the shares or debentures o f the corporation. The amount o f these shares or debentures is established in a manner to furnish the equity required by the corporation fo r the dwelling or apartment the indi vidual is to lease.26 I t is not recommended that a subscription to shares be executed in the amount o f the total value o f the property. T o do so has the effect not only o f increasing the member’s liability to the value o f his equity plus mortgage, but also o f making the member respon sible on his lease fo r the payments necessary to service the mortgage. The limitation o f personal liability through incorporation is destroyed to the extent that the member is required to sign a subscription agree ment in excess o f the equity required. Even in mortgage financing, the trend o f progress is away from the increased liability o f the homeowner as represented by deficiency judgments. Only i f all o f the cost is to be raised through share subscriptions and none through a mortgage (or other borrowing) should subscriptions equal the total value o f the property. In the case o f buying land, raw or improved, it is desirable that the members’ subscriptions be in an amount great enough to pay for the land and the improvements necessary to make the land useful fo r hous ing. A variety o f difficulties may be encountered in developing mort gaged land and then releasing sites for building purposes. The land must be free o f mortgage encumbrances when the first-mortgage build ing loan goes into effect; it is suggested that this initial and minimum subscription required o f each member be adequate to bring the land to this developed stage. I f this subscription amounts to more than the minimum required under the mortgage-financing plan, it is suggested that the maximum mortgage loan be taken, but that this excess equity be used to prepay the mortgage as elsewhere suggested. In case a cooperative acquires a much larger tract o f land than is needed for the original housing development, the burden o f financing can be eased by liftin g the mortgage only on the parcel o f land to be used at once. The remainder can then be paid fo r more gradually. Such an arrangement, if adopted, should be specifically provided for in the sales contract; otherwise the cooperative may later find it difficult to obtain the consent o f the seller o f the land. In the case o f an association buying a completed building, it is nec essary that the equity paid in through the purchase o f shares be at least equal to cost above the mortgage. It is far better if it is in excess o f the equity required, and if a portion o f the shares is used to prepay the m ortgage; this procedure starts the association with a reserve fund which can be used to buy in the shares o f outgoing members. The funds are obtained by simply withholding amortization payments on the loan. This is made possible by the prepayment credit obtained by pre-*2 8 25 For sample agreement see Appendix B (p . 4 8 ). 28 “ Desirability” factors (location, view, extra-line plot, etc.) m ay be reflected in the total by im posing additional flat amounts for each factor involved. 26 ORGANIZATION OP HOUSING ASSOCIATIONS paying the mortgage. This also enables the association, i f necessary, to lend an incoming member a portion o f the funds necessary to buy the shares o f an outgoing member. Assume, for example, that the members plan to build $5,000 homes, this being the total value o f land and buildings. Under a 90-percent loan, the first-mortgage loan would amount to $4,500, and the minimum paid-in equity $500. In most cases, the land, plus cost o f roads, sewers, utilities, etc., w ill exceed $500. It w ill probably run nearer to $750 to $1,000 per improved dwelling site. An association should therefore set its minimum share subscriptions at the $1,000 mark, if this w ill actu ally cover the cost o f the land and improvements. A fter the buildings are erected, the dwellings and land w ill be eligible for a $4,500 loan. It is suggested that the loan be sought in this upper amount, but that this overlapping $500 o f equity actually not required under the $4,500 loan be used to prepay the mortgage (taking care, o f course, to see that the maximum indebtedness permittee! at any time under the original m ort gage be retained). The use o f second-mortgage financing to raise any portion o f the cost is not advised. Second-mortgage financing is very expensive because o f the mortgagee’s risk. BOND ISSUES Bonds are essentially a part interest in a primary or secured indebt edness o f the corporation. They may be utilized to raise a portion o f the funds for financing a project, but this type o f financing should not be necessary under the high-percentage single-mortgage loan. Bonds might be sold to raise the funds for development o f land for the por tion o f the site not originally taken by the members. However, bonds bear interest, which adds materially to the cost o f improvements fi nanced in this way. Compelling contractors or material firms to take bonds for a portion o f their contract is likely to result in a higher cost than could have been obtained if payment had been in cash. PREFERRED STOCK Preferred stock represents an ownership interest entitled to its inter est return and repayment prior to any settlement to common stockhold ers. Interest paid on both preferred and common stock is taxable. Sale o f preferred stock has been used to finance cooperative corporations, the stock generally being issued to a limited number o f members, friends, or associations w illing to invest a portion o f their capital in the development. However, cooperative organizations whose members expect to deduct, from their taxable income, the pro-rata interest and tax payments made by the association on their behalf should not utilize preferred stock. (See section on taxation, p. 37.) DEBENTURES A debenture is a bond or note, form ing one o f an issue. As a debt which the corporation is pledged to pay, it takes its place along with the other claims on the corporation ana has preference over common stock. The interest payments on a debenture do not constitute a taxable distribution o f the corporation, for such costs are regarded as a busi ness expense, just as if the money were borrowed from a bank and interest paid on the debt. MEMBER IN RELATION TO ORGANIZATION 27 PER SO N AL L O A N S O BTAIN ED B Y M EM BERS Because o f the reluctance or inability o f some mortgage-lending sources to make construction loans, it is sometimes necessary to arrange separate financing for the construction o f the building. Generally it is advisable to utilize the services o f a financing agency which can make the construction loan, but if this is not possible it may be necessary to resort to personal loans obtained by the members. The cost in such cases is usually high. Any agency empowered to make FHA-insured loans and most savings and loan associations w ill also make a building loan. In the event that construction loans may not be available, the members might raise a revolving fund by the purchase o f additional stock or depositing funds with their association to build the various dwellings. Then, as each building was placed under the first-mortgage financing, the association’s revolving fund would be repaid. The M em ber In R elation T o the O rganization , Ownership o f Shares N ot o f Dwelling The member o f a cooperative housing association does not own his house or apartment; he owns shares in the cooperative association. The ownership o f these shares entitles him to a renewable or permanent lease o f the dwelling which he occupies. This gives him most o f the ad vantages o f home ownership, the sense o f security and o f permanency, and also an interest in im proving and keeping up the property, just as though he were a private owner. H e is the private owner o f the stock o f the housing association. The legal ownership o f the property, however, should at all times be vested with the association as a whole. The member does not have indi vidual title to the property he occupies. The property is never divided up among the tenant-members. They all own it together. Experience shows that this is the only way to heep cooperative housing cooperative. W hen members can obtain individual title to their dwelling unit, they often sell or rent it fo r personal profit. This introduces speculation, one o f the evils which cooperation seeks to remove. I f cooperators obtain homes on a cooperative, nonprofit basis and then dispose o f them for rofit outside o f their group, the cooperative principle is destroyed. [ot only do cooperators desire the advantage o f securing a home co operatively, but they want to keep that advantage by permanent own ership and administration o f their homes in a cooperative manner. I f financing or other com pelling reasons make necessary the giving o f individual titles to the members,27 safeguards such as the follow ing should be im posed: A recorded option whereby the association reserves the right to buy the property at any time at a stipulated price, minus depreciation computed according to a stipulated form ula; a recorded agreement (embodied in the option) that no sale to any other person or organization may be made until a specified time after the association has been notified o f intention to sell; an agreement that premises shall not be rented to nonmembers except with the permission o f the board S 27 Such a procedure does have certain advantages, among which m ight be cited (1 ) easier financing, (2 ) avoidance o f foreclosure risk to members able to continue payments or having high equities during a tim e o f general distress when many members m ight be delinquent in their accounts with the association, and ( 3 ), as a consequence o f ( 2 ), less difficulty in obtaining members. 684613°-—46-----5 28 ORGANIZATION OF HOUSING ASSOCIATIONS o f directors o f the housing association and under terms specified by it, and in no case for longer than 6 months or 1 year; and provision in charter and bylaws that in the event o f dissolution o f the association, all property shall be sold through it, with any surplus o f funds realized in excess o f actual investment, minus depreciation, to be distributed in some form entailing no profits to individual members (such as by do nation to housing authority or State board, or to a fund for prom oting the cooperative movement). M em ber’s Lease A s already stated, the member receives a certificate for the amount o f his paid-in stock and a lease which entitles him to the continuing occupancy o f one o f the dwelling units. This lease in form is like an ordinary lease. In it the tenant-member agrees to pay a stated “ rental” per month to meet expenses for the period o f the lease. The lease may be for lifelong occupancy or 99 years, or it may be a 2- to 3-year re newable lease which can be extended for similar periods. The latter method has been in successful use over a long period o f time in Am al gamated Dwellings and Amalgamated Housing Corporation in New Y ork City. It has the advantage o f making more feasible the expulsion o f members who have become obnoxious to the rest o f the community, which is very difficult to do under a lifetim e or 99-year lease. The re newable lease also limits the member’s rent liability to a short period, instead o f the longer period provided in the lifelong or 99-year lease. In any case, the lease should permit its being transferred to the mem ber’s heirs or fam ily upon his death, provided the heirs continue to occupy the house, and provided the usual conditions and obligations o f a tenant-member are fulfilled.28 Rental Charges or M onthly Maintenance Payments Besides the amount invested by the member in shares o f the associ ation, he must pay a monthly “ rental” or maintenance charge to cover the fixed charges and operating expenses o f the property. The monthly charge is usually determined by the association’s board o f directors293 0 and is incorporated in the lease each member signs. F ixed charges.— The fixed charges include interest on share capital, if any is to be paid; interest on any bonds, preferred stock, or deben tures issued by the association; interest on mortgage indebtedness; amortization payment at least as large as the depreciation on the prop erty (otherwise the shares lose their va lu e); taxes; mortgage insurance (if F H A -insured); and fire and liability insurance. L ife and disability insurance are not included under the insurance item above, but the provision o f group disability and group life insur ance is not an extremely heavy charge, and is worth investigating. The Credit Union National Association80writes a type o f life and disability insurance fo r borrowing members o f credit unions which might be available to members o f cooperative housing associations. The value 88 For model lease, see Appendix C (p . 4 9 ). 28 But if the association is incorporated nnder the State housing1law , these charges must con form to the provisions o f that act. Thus, in Arkansas, California, Delaware and Kansas, the rentals are set by the State Housing Board; in Illinois, New Jersey, New York, Ohio, South Carolina, and Texas the State Housing Board sets maximums which must not be exceeded. 30 The address o f the association is Raiffeisen House, Madison 1, W is. MEMBER IN RELATION TO ORGANIZATION 29 o f this type o f insurance is that the benefits payable on death or dis ability o f the member enable his fam ily either to pay off the mortgage charge on the dwelling, greatly reducing the subsequent cost, or pre pares it better to meet the monthly charges on the dwelling. This insures continuity o f the association. A reserve or contingency fund is set aside fo r special purposes, such as purchase o f members’ shares, fo r emergencies, or fo r the develop ment or expansion o f the enterprise. Under a suitably drawn plan, a large part o f this fund could be used fo r mortgage-prepayment pur poses. Operating expenses.—These may vary according to the type o f devel opment planned. The operating expenses include wages o f janitors, helpers, office and administration expense; cost o f fu el; cost o f elec tricity and pow er; cost o f water; repairs, renovating, painting, etc.; elevator expense; cost o f garden; insect-extermination expense; fees, legal and accounting; miscellaneous operating expenses; and cost o f equipment and supplies. In single-fam ily dwellings on a spread-out plot, it may be less costly to have individually fired heating equipment. In such case, it would seem advisable to let the individual directly assume responsibility fo r his fuel bill, gaining such economies as may be possible through co operative purchasing. It would seem wise also to furnish electricity and power on a metered basis, with the cooperative buying at a wholesale rate, and furnishing the electricity to the members at such saving as it can effect. I f the use o f water is likely to be excessive by some mem bers, it too could be metered. A n individual fam ily is likely to be less wasteful o f metered services than i f they are furnished as part o f the rent. One o f the definite advantages o f cooperative ownership is that by providing fo r proper maintenance o f the dwellings, the long-term value o f the residences and the neighborhood can be maintained at a high level. This policy o f maintenance justifies the amortization o f the mortgage over a longer period o f time than when no provision is made for keeping property in good shape. It further increases the security o f the members’ investment. It is nighly desirable that a cooperative association make provision fo r all necessary exterior painting, roof repairs, pointing o f masonry, maintenance or replacement o f worn-out utters, etc., in order to keep its property in neat and sound condition. onsecpiently, a charge should be levied to insure that funds fo r this essential maintenance are available. The interior decoration o f the dwellings could either be met directly by the tenants, or provided fo r in the monthly charges. In many devel opments, it might be feasible to allow the budgeted sum to the indi vidual cooperator upon satisfactory completion o f the redecorating, or the exterior painting. The necessary supplies might be bought by the association and furnished to the members. Public halls and stairways, elevators, walks, public or community space, plumbing and heating equipment, ranges, and refrigerators, and the structure o f the building w ill have to be kept in sound repair and good condition by the association. The approximate cost figure used fo r all heating, administrative, and maintenance costs is $4.50 per room per month for dwelling in a m ultifam ily or elevator apartment build ing requiring janitor service. This figure may be reduced considerably g 30 ORGANIZATION OF HOUSING ASSOCIATIONS when developments are so planned as to put the responsibility for much o f this maintenance directly upon the members, as it is when property is held in single ownership. In such cases, members might be given cash credit for work o f this kind. Equipment (ladders, paint brushes, putty knives, etc.) and supplies could be furnished by the association. Upon completion o f the job, the members would be cred ited with the standard labor charge. I f such a practice is adopted, the association should take out liability insurance, to cover possible acci dents to members doing such work. General price policy.—T o allow for safety and fo r contingencies, the cooperative association should set its budget a little above the estimated costs. It is uncertain and hazardous to budget in advance the exact cost o f running an enterprise. Cooperatives which attempt to oper ate on a cost basis in their charges are on very risky ground. One o f the basic Bochdale practices, which has proved itself in practice, is sale at market prices. Through the annual rent refund any overcharge is automatically returned, thereby reducing the member’s charges to the net cost. A t the end o f each year, when all operating expenses, heat, light, taxes, interest, debt service, etc., are known and paid, and the proper reserves provided for, the accounting can be made o f the earnings available fo r the rent refund. It is not wise to base any general readjustment o f charges, at least if the adjustment is downward, on less than several years’ operating experience. In case income is insuffi cient to cover all expenses, an assessment based on the monthly charges w ill have to be voted by the members. Voting Power Each member o f the genuinely cooperative housing association has one vote and no more regardless o f the number o f shares owned. This is in contrast with profit business; in the latter each share o f stock carries with it one vote, so that if a person owns 100 shares o f stock he has 100 votes, and i f he owns a m ajority o f the shares he casts a m ajority o f the votes and controls the organization. Democratic control, which is a basic principle o f cooperatives, is usually provided fo r in the cooper ative laws, but may not be required or even permitted if the association incorporates under other statutes. However, as pointed out elsewhere, it may be possible to include in the articles o f incorporation provisions for democratic control even though the statute does not require them. Withdrawals o f M em bers I f a member o f a cooperative housing association wishes or is forced by circumstances to withdraw from the association, he may do so, but his shares must be offered to the association first and at the par value which he paid fo r them. The shares are bought back by the association at par value, less any amount owing the association fo r rent or for dam ages to the property. I f the member has allowed his savings return or the interest on share capital to remain in the association’s treasury, this amount is also due him. When the member has paid amortization on the loan at a rate significantly greater than the rate o f depreci ation, some arrangement should be worked out to return such increased equity interest. The incoming member, under such an arrangement, MEMBER IN RELATION TO ORGANIZATION 31 should match the share investment and the increased equity o f the withdrawing member. The association should purchase the shares o f a member within as short a period as possible, providing the finances o f the society are not jeopardized. The place o f a retiring member should be taken when ever possible by the next prospective member on the waiting list for that particular type o f housing unit. Usually the bylaws provide for the repurchase o f the member’s shares in such cases, and a reserve fund is set aside for this purpose. The payment o f the incoming member may be used to repay the withdraw ing member. In some associations the reserve fund is held in a separate corporation which is authorized to purchase the shares o f withdraw ing members and sell them to the incoming member. The reserve fund, under such an arrangement, can be built up by having members assign a portion o f their rent refunds fo r this use. The mortgage-prepayment cushion, described elsewhere in this pamphlet, can serve as the source o f funds fo r buying in the shares o f the outgoing member, by the device o f withholding interest and amortization payments on the mortgage and letting the debt increase. Shares o f outgoing members should not be redeemed when this process jeopardizes the financial stability o f the association. In such case, a program fo r making regular partial payments in settling the account might prove feasible, the shares o f the withdrawing members being sold to incoming mem bers and a partial loan being granted to the new members to complete their initial purchase. In the event that none o f the prospective replacement members can make the investment required, some arrangement should be developed whereby the incoming member may borrow a portion o f the funds necessary to pay fo r his shares, under some agreement whereby the shares themselves become security fo r the loan. This loan should be repaid with interest and amortization by the member, on a monthly basis; this has, o f course, the effect o f adding to the member’s main tenance charges. I f it becomes absolutely necessary for the association to rent an apartment or dwelling to a nonmember because there is no member applicant for it, the rental set should be high enough to pay interest on the association’s equity in the rented dwelling, especially i f the common shares carry no interest and the maintenance charge does not include interest on the shares. I f at the expiration o f a year, or such other period as is provided fo r the repurchase o f the shares by the association, the board o f directors has not bought back the shares or transferred them to a new member, the member him self shall have the right o f sale. This right o f sale should be lim ited to a new tenant-member, acceptable to the association, who signifies his intention o f occupying the property. A ll transfers o f shares should be made on the books o f the cooperative association. Much o f the economic pressure which tends to cause withdrawals from cooperative housing ventures in depression times could be elimi nated by the establishment o f a tenant’s deposit account. The opera tion o f such an account is described in further detail on page 35. 32 ORGANIZATION OP HOUSING ASSOCIATIONS Adm inistration and Management Administration o f the Association The affairs o f the association are administered by a board o f directors, elected by the membership in general meeting. The di rectors serve without pay, and decide and act upon all general and fiscal policies. In most cases, the directors in turn elect from their own number the officers—generally president, vice president, secre tary, and treasurer. In genuine cooperative associations, the nominees fo r the board must be members o f the association. In the case o f limited-dividend and mutual housing associations, which may other wise operate as a cooperative enterprise, the board members m ight not all be drawn from the membership. Management o f the Property The directors employ a bonded manager, whose duties are to collect the rents, keep the accounts, handle deposits, authorize disbursements, keep the property in good order, and make recommendations to the board on policy. H e may also manage some or all o f any other co operative enterprises connected with the enterprise. The success o f a cooperative housing association is largely dependent upon the ability and efficiency o f the manager, and upon his understanding o f co operative aims and principles. Beyond this, a good manager needs a knowledge o f business principles and law and the ability to work amicably with people. One o f his duties is minimizing or eliminating friction which can be injurious to the well-being o f the association. I f the management is not satisfactory to the membership, the elec tion o f more capable directors or the appointment o f a more capable manager is one possible solution. The membership m ight even decide to turn the administration o f its property over to a central coopera tive housing authority, such as the administrative bureau o f a co operative housing federation, to a cooperative league, to a State or municipal housing authority, or to a properly bonded real-estatemanagement company. However, such relinquishment o f control implies some degree o f failure by the association to manage its own affairs properly. The ideal solution might be to have available, per haps through a central cooperative housing federation, league, or wholesale, expert advisory and supervisory personnel which could assist the manager or board in working out solutions to troublesome problems. Committees A wide variety o f member-sponsored activities is possible when the members are awake to ways and means o f meeting their common needs collectively. Some boards o f directors (especially i f not all o f the directors are elected from the membership) may authorize a house committee to handle many o f the decisions that confront the association, such as approving new members, handling problems o f group discipline, form ulating recommended rent-refund policies, etc. A separate committee on cooperative services, or a separate co operative corporation might handle the distribution o f electricity ADMINISTRATION AND MANAGEMENT 33 or other utility services, the distribution o f milk, the operation o f stores, central kitchen, restaurant or dining room, bakery, laundry, children’s nursery, library, recreation o f various kinds, barber shop, beauty shop, shoe-repair, gasoline station, automobile storage or re pair, and other services needed by members. A first-aid hospital or dispensary might be justified in some developments. Joint arrange ment might be made for the part-time service o f maids, cleaners, seam stresses, and children’s nurses or teachers, if the members desired. The financial administration o f some or all o f these activities may be assigned to the manager o f the cooperative housing association. A n education committee is highly desirable. In all live cooperative associations an education committee o f the members performs the function o f keeping up interest in the whole cooperative movement— what it is doing and aims to do—by holding meetings, forums, and classes, by giving plays and pageants, and by carrying on activities to keep members interested in the larger possibilities and achieve ments o f cooperation. Some larger societies employ a full-tim e edu cational director. A news sheet may be published, with the educa tional director serving as editor. Beyond these more or less official committees or organizations, there should be a bond o f sympathy and brotherhood which prompts the members to grapple collectively with problems o f common concern. In some cases, this group thoughtfulness might apply to helping those known to be in need, whether members or not. Another group activity which is carried on in many cooperative associations is a credit union. The financial and educational value o f these small cooperative banks, operated within the membership o f the association, should not be overlooked. The reserves they repre sent, and the aid they can render in an em ergency may, in times o f economic depression, make the difference between success or failure o f a hard-pressed association. Credit unions may be o f great assist ance in helping new members to purchase their housing shares, or enabling members to meet emergency expenses which might otherwise have prevented the payment o f rental or maintenance charges. The business training obtained by the officers o f a credit union is also an excellent preliminary to greater participation in housing matters. Policies SU BLETTIN G OR SU BLEASIN G TO N O N M EM B ER S The basic function o f cooperative housing is that o f supplying dwelling accommodations collectively, for the members, on a non profit or service basis. Subletting or subleasing, as a regular policy, should not be permitted. Ordinarily a member who does not desire to reside in his dwelling unit should turn his apartment or residence back to the association for leasing to a new member on the waiting list. In such case the outgoing member’s shares are transferred on the association’s books, and the new member makes the investment necessary to repay the withdrawing member. I f a tenant-member finds it necessary to sublet his dwelling, there should be certain regulations relating to this matter. The period o f subleasing should be only for a short period o f time—perhaps a 34 ORGANIZATION OF HOUSING ASSOCIATIONS few months to a year.31 The proposed tenant should be acceptable to the board o f directors, or to the committee that handles member ship. The rental charged should not include a profit to be collected by the lessor, but might reflect interest on the investment and the rental value o f the furnishings, minus the rent refund for the rental period. In fixing the rental charges the association should conform to any regulations by price-control agencies (if incorporated under limited-dividend housing laws) or by the housing authority or super visor charged with regulation o f the housing enterprise.32 In genuine cooperative housing associations neither the maintenance charge (“ rental” ) nor the investment required is subject to the wartime rentcontrol regulations, because o f the nature o f the cooperative ownership. Several methods o f obviating subleasing or vacancies in times o f lessened demand are possible: (1) Arrangements could be made fo r incoming members to borrow, from either commercial sources or the association’s reserves, a portion o f their share-capital requirements so that their shares could be paid for in full at once, the debt (w ith interest) being paid up over a period o f years. The member could pledge the shares so purchased as collateral for his loan.33 (2) Vacant quarters could be rent ed by the association at a rate which would pay the interest return to the association on its equity in the apartment. W ith this source o f revenue, the association might justify borrowing from outside sources if necessary, since the renting nonmember would be paying the necessary interest costs. (3) The best policy o f all would be to maintain the prices for the association’s properties suffi ciently low, for the facilities offered, to insure that the dwellings would remain “ good buys” regardless o f hard times. In such a situation, a long waiting list could probably be maintained, keeping a ready source o f new members. Widespread subleasing or rental to nonmembers by the association is destructive o f the underlying principles o f consumers’ cooperative housing, and is not recommended. Any profits realized by an asso ciation (beyond the interest return on its equity) in renting to non members, should be devoted to the benefit o f the whole association or, if possible, to enabling the nonmembers to purchase their shares. RENTAL OF COMMERCIAL PROPERTY In a large project in which space has been provided for a community shopping and service center, the association w ill properly act as landlord, renting the facilities at rates high enough to cover costs plus a reasonable margin. Such practice is justified, in that the com mercial value is the result o f the housing development itself, and should inure to the association. The properties should preferably be let to cooperative associations formed to carry on the needed serv ices; as soon as these associations are in financial position to do so, they should be allowed to become members o f the housing association and owners o f shares entitling them to leasehold o f the premises they occupy, on the same terms as other members. 31 The association m ight eliminate much of the demand for subleasing if members who left the city for a year or S) at a time were retained on the membership rolls; they would then have priority over new applicants for any vacancies. 32See footnote 29, p. 28. 33 This system was employed by Amalgamated Dwellings, In c., to enable new members to come irto this development, which was built at the onset of the depression of the thirties. ADMINISTRATION AND MANAGEMENT 35 IN TER EST O N SH A R E CAPITAL Interest may or may not be paid on share capital, as has been men tioned previously. I f it is possible to apportion the member's subscription to the shares to the cost o f this dwelling, a s h y a per-room basis or a percentage o f the total cost, it is desirable to have the com mon shares noninterestbearing. Interest, if paid, is largely o f illusory benefit: In order to pay interest on shares, additional funds must be collected from the member in his maintenance charge, only to pay them back to him. A lso, the interest payment on shares constitutes a taxable distribution o f earnings, since it is paid out in proportion to the stock ownership. The member must therefore be charged for both taxes and interest, in order that he be paid the interest. A person, in estimating the total cost o f his own housing, may calculate the interest his share investment might otherwise earn, but the individual who owns a house individually does not actually charge himself in terest on his investment and then pay it to himself. I f, nevertheless, the members decide that interest be paid, it should not exceed the current market rate, nor should it vary with either the value o f the property or the earnings o f the association.34 I f it is necessary or desirable that some members or friends con tribute capital beyond their pro-rata portion, subscribed in shares, such oversubscription should preferably be handled as a loan. It might be deposited with the association, lent to the association on an interest-bearing note, or paid on a subscription or a debenture bond. This method o f obtaining auxiliary financing does not involve needless taxation o f the association, nor does it disqualify the asso ciation under certain other regulations o f the Internal Revenue Code relating to cooperative housing. M EM BER S9 D EPOSIT AC C O U N T In an association which has been able to secure a mortgage loan which gives fu ll credit in time as well as debt for prepayments on the amortization o f the mortgage loan, it would be feasible to estab lish a members5 deposit account. Essentially and simply, this would be a type o f savings account in which the members could deposit their refunds, or other savings for the chief purpose o f prepaying the mortgage. Such a deposit account should probably make a small interest payment comparable to that o f a savings bank fo r the balance maintained in the account. The funds would be used prim arily to reduce the higher-interest-rate mortgage loan, thereby effecting a sav ings in interest to the association. It would be desirable to have this account available fo r other de posits besides the refunds which members might leave with the asso ciation. The conditions for repayment or withdrawal o f these funds m ight be somewhat restricted in order to insure their use fo r helping to meet the member’s maintenance or “ rent55obligations. Conceivably, i f all members o f an association simultaneously sought to use their deposits to make their rent payments, restrictions might have to be imposed permitting withdrawal o f an amount equivalent to one-third or one-half o f the monthly rent. M The State housing laws lim it the rate o f interest on share capital to 6 percent, except in Illinois where 6Yi percent is allowed and in Delaware where 8 percent is allowed. 684618 ° — 46- ------- 6 36 ORGANIZATION OP HOUSING ASSOCIATIONS The chief purpose o f the deposit account is the establishment o f a financial reserve upon which the member could draw to supplement the funds he might have in order to make his monthly payments. The association would have to withhold amortization payments, and per haps let the interest accrue on its mortgage, utilizing its mortgagerepayment reserve to offset the member’s withdrawals. W ith the eposit account entirely depleted, the association’s mortgage would have grown to the amount provided in the original schedule o f mort gage payments. S Properly utilized, such a deposit account could have the effect of encouraging members’ savings in inflationary periods, lowering their housing costs in times of economic depression or unemployment, and greatly increasing the financial security of the association. EFFECT OF INCREASE OR DECREASE IN PROPERTY VALUES In a cooperative housing association the members do not profit financially By any increase in the value o f the property or o f the capi tal stock; there are no stock dividends and no extra bonuses, as is customary in ordinary stock corporations. A n increase in the market valuation o f the property as a whole does not result in stock revalua tion. I t may increase taxes. W hen the market value o f the property declines, the members are equally not affected, except as they may enjoy lower taxes. This is true because the cooperators are members o f an association which collectively owns homes fo r residence pur poses and not fo r sale or speculation. The antispeculative controls previously suggested are techniques fo r eliminating profit-taking at the expense o f consumers o f housing. I t is also important to find ways to meet the deflationary challenge which an association must expect to face during its lifetim e. I t is almost axiomatic to say that families w ill not want to move out o f a cooperative development any sooner than financial considerations compel them to do so. The soundest way to prevent such withdrawals is fo r the association to build up as large a reserve as possible, pref erably in the form o f mortgage prepayments, upon which a fam ily may draw fo r a fairly long period, to supplement the rent payments it can make. The advantage o f the mortgage-prepayment method is that such prepayments reduce the interest cost on the mortgage. Such funds, i f invested in other ways, might not be available to meet mortgage payments in the event o f another economic debacle, and certainly are not likely to bring any more interest than is being paid on the mortgage. A lengthy period o f partial unemployment m ight exhaust such reserves, especially if the association’s reserves were small to begin with. The members whose rent-receivable accounts may be growing have actually secured that debt up to the amount o f their investment in shares, yet unless the mortgagee is unusually sympathetic, or imlasg there is in effect a moratorium on foreclosures, an association as a whole is no more able to convert its equity to rent than the individual fam ily owning a mortgaged house. Money m ight be borrowed on these rent-receivable accounts to help make mortgage payments. TAX STATUS 37 Tax Status o f Cooperative Housing Associations One unique feature o f cooperative housing is its nature as a non profit, nonspeculative, corporate type o f group home ownership. As long as the net earnings o f a cooperative housing association are disbursed as a rent refund, rather than as interest or dividend to stockholders, the effect o f this distribution is to reduce both the taxa ble income and reserves held by the association and the cost o f housing fo r the members. (This would be true in any corporation, whether cooperative or otherwise; however, the usual corporation is in busi ness to pay its earnings not to its customers but, rather, to its stock holders.) Earnings not refunded, but held as reserves or paid out as a dividend to stockholders, are subject to taxation. Many cooperative statutes require that a percentage o f the earnings be set aside until the reserve equals a certain proportion (usually 30 to 50 percent) o f the value o f the stock outstanding.35 The funds paid into this reserve are probably taxable since they would eventually accrue to shareholders o f the association in proportion to ownership.86 A reserve satisfactory to the cooperative laws could probably be estab lished from the outset by requiring that the members’ paid-in sub scriptions exceed the minimum equity required for financing, and then utilizing this additional capital to build up a prepayment reserve or cushion in the mortgage-amortization schedule. Some associations have built up a reserve from which to buy in their shares, by returning virtually all o f their earnings to their members as a patronage refund on rent. The members, either at the annual meeting or by action o f their board, have previously agreed to assign or donate a portion o f this refund to a special housing fund. This rand might be held by a separate corporation, preferably the one charged with buying in and selling the shares o f the housing asso ciation to incoming members. In this case, the reserve is built up by donations or loans o f the members to the fund, not by a taxable withholding o f reserves. Individual taxpayerSj owning property in single ownership, are permitted to deduct their real-estate tax and interest payments from their income subject to taxation. A s the internal revenue laws make a similar provision fo r the cooperative ownership o f real estate, the member may deduct his pro-rata portion o f the taxes and interest payments made on his behalf by his association. However, i f a hous ing association has more than one kind o f stock outstanding, or i f any o f its earning are paid out as profits, or if more than 20 percent o f the stock is owned b y nonresident members, the members o f the association w ill be disqualified from this income-tax deduction. (See Internal Revenue Code, Regulation 111.) Use o f Surplus Savings I f the laws of incorporation permit, there are many uses to which the surplus savings, which accrue from collecting from the tenantmembers more than the net costs, may be put. Thus— 88The housing laws, on the other hand, set a maximum (generally 15 percent), which m ay not be exceeded. “ However, “ equity reserves” earmarked for individual members have been held to be nontaxable to the association. 38 ORGANIZATION OF HOUSING ASSOCIATIONS (1) They may be used for more rapid amortization o f the mortgage. (2) They may be returned to the members directly in cash, as savings returns, in proportion to their monthly rental or maintenance charges. (3) They may be returned to the member as a rent refund, but in two portions, part in cash to the member and part as payment to be assigned to a reserve or housing fund. (4) They may be returned to the members as a rent refund under a plan whereby part or all o f the refund would be deposited to the member’s account with the association, for withdrawal by the member upon need (as to pay his monthly charges). A small interest pay ment, comparable to that on a savings account, would be justified on this sort o f deposit, especially if these funds were utilized to pre pay the interest-bearing mortgage indebtedness under the prepayment provisions discussed previously. (5) A portion o f these surplus savings might be spent fo r further improvement o f the property, beautification o f the premises, develop ing additional recreational facilities, meeting and game rooms, thea ter, summer camp, etc., to build up a library, or to purchase additional equipment not otherwise provided. It is strongly recommended that, before distribution o f the surplus savings, a portion be set aside for social or community purposes. (6 ) A portion o f these funds might become the working capital fo r other self-supporting cooperative services, such as distribution o f food and dairy products, furnishing a barber shop, a shoe-repair shop, a medical clinic, or a nursery school and kindergarten, or other services needed by the community.37 In case these services were to be undertaken by a separate service cooperative, these savings could be refunded to members to use for purchasing their shares in the service cooperative. (7) The savings return may be authorized for payment under a plan which defers the actual payment fo r a period o f years. This in effect is a type o f loan from the member, which increases the working capital in the association. This method o f maintaining a revolving fund o f capital in addition to share capital has become very popular among agricultural cooperatives in recent years. It has been sub jected to criticism from organizations opposed to cooperative enter prise, but the Federal courts have ruled that deferment o f patronage refunds does not make a cooperative liable to the payment o f Federal income tax on the amounts so deferred. (8 ) These surplus sayings might be partially utilized fo r educa tional work in expanding the usefulness or scope o f cooperative housing. Lack o f even minimal financial support for this type o f work, usually provided by most Rochdale cooperatives, has been a m ajor deterrent in the development o f a widespread program o f cooperative housing. (9 ) These surplus savings might become the working capital fo r other cooperative wholesaling or manufacturing organizations which would furnish necessary building materials, supplies, or appliances for cooperative housing associations. 37 In a large association it would be desirable at the start, to provide space fo r community stores and services. One o f the first measures after the dwellings were occupied could then be the form ation of one or more cooperative associations to operate such enterprises. DISSOLUTION OF ASSOCIATION 39 Before making a decision on the uses to which the surplus savings shall be put, the association should study the provisions o f the law under which it is incorporated, to insure the legality o f its decision.38 Dissolution of Association I f the requisite proportion o f the members vote in general or special meeting to dissolve,39 dissolution should become effective.40 The dis solution and sale o f the property for the personal gain o f the members should be discouraged,- fo r it permits those who chance to be the final members to reap the benefits o f the joint efforts o f all who preceded them, thus violating the nonprofit feature o f the enterprise. P ro vision may be made in the bylaws, at the beginning, that shares shall remain at par, and that any increase in the value o f the property shall be used as a fund fo r the further development o f the coopera tive movement or o f cooperative housing. Thus, if for some reason it seems necessary to disband the association, the property is sold as a unit. In the case o f detached residential buildings, the dwellings might be sold to individual owners by the association. No member should receive for his shares more than he has invested. I f no interest has been paid on the shares, payment o f such interest conceivably might be permitted. I f the association is operating under a housing law which restricts returns to the owner o f the stock, the limited divi dend established in the law would apply in this settlement. In the event that the equity interest sells fo r more than the capital invested (plus, perhaps, the uncollected interest), it would be highly desirable that the association use this “ profit” for some valid com munity purpose, such as the establishment o f a park or library, or assign it to a fund for the financing or guidance o f other cooperative associations.41 I f, at the time o f dissolution, the value o f the property has de creased, the members receive such percentage o f their shares as has been realized by the sale o f the property. This loss may be attributable to putting the association’s property on the market at a time o f low real-estate values; obviously, dissolution should not be undertaken at such times if any alternative plan is possible. This potential loss upon dissolution may also be traceable to charging off depreciation at an insufficient rate, resulting in a reduction o f the share capital because maintenance charges were not set high enough to include a proper depreciation. The loss in value o f the shares, in this instance, would already have been offset by the gain the members obtained through too-cheap rent. 38 A ny o f the above uses would he legal under practically all o f the consumers’ cooperative laws. Some of the limited-dividend housing laws, however, sharply lim it the purposes fo r which surplus earnings may be used. Thus, if receipts exceed operating and other expenses, the balance must be applied to a reduction o f rent in Illinois and Kansas; also in New York, Ohio, South Caro lina and Texas, unless the amount is too sm all. In Massachusetts the surplus earnings may be used for the renovation o f the property or to provide other facilities, in the discretion o f the ^ °S SpJ.Qportion varies in the various State cooperative laws but (when specified) is generally a majority or two-thirds o f the entire membership. 40 Associations formed under State housing laws are often required to obtain the approval o f the State housing board before they may dissolve. This is the case in Arkansas, Florida, Illinois, TTitnaag New Jersey, New York, Ohio Pennsylvania, South Carolina, and Texas. 41 Un^er the housing laws o f Florida, Kansas, New York, Ohio, South Carolina, and Texas, any excess above par value of shares must be paid over to the State unless the State housing board approves some other means o f disposal. 40 ORGANIZATION OF HOUSING ASSOCIATIONS Central Cooperative H ousing Organizations Supervisory Agency and Cooperative Housing Fund In order to make adequate information and technical guidance avail able to groups desiring to undertake a cooperative housing venture, it would be highly desirable that a consultative, advisory, or super visory service be established. Such assistance should be available through critical early years when the association must make im por tant decisions, in order to bring the experience and knowledge o f other cooperative groups to bear on the problems o f each association.42 In addition to this service, the creation o f a housing fund to assist in the development o f cooperative housing associations would like wise be desirable. This fund should be available fo r (1 ) loans to individual cooperators who have not sufficient funds to subscribe to the fu ll amount in the beginning fo r their purchase o f shares, and (2 ) loans to cooperative housing associations to finance their original development or to meet their temporary financial needs. Such a fund could be raised by subscription fo r bonds or shares. Possible sub scribers fo r such bonds would include cooperative associations; founda tions and philanthropic organizations; insurance companies, banks, and other business institutions; individuals; and municipal, State, and Federal Governments. This fund would be administered by a board o f directors elected by the shareholders, or it might be administered by a cooperative housing federation when such exists. Federated Activities o f Cooperative H om ing Associations Cooperation between associations is useful in the same way that cooperation between individuals is useful. Two or more housing associations may unite fo r their mutual advantage, form ing what is comparable to the cooperative wholesale or league among the store associations. The members o f this federation would be associations, not individuals, with votes in proportion to the membership o f each constituent organization. The federation would be financed by the subscription o f shares by the member associations. It would engage in large-scale educational, service, or commercial enterprises, which are more effectively performed thus than by a single association. Possible activities might include a central architects’ bureau, facilities for building and contracting, and manufacturing or wholesale dealing in roofing materials, lumber, sash, frames, doors, paint, plumbing supplies, and other housing needs. Some o f these supplies are already available through cooperative wholesales.43 The utilization o f relatively standardized items by various cooperative housing associations would permit efficient large-scale buying, and in some cases, manufacturing, in order to help keep the costs down, and still maintain quality and specification standards. Cooperative 43 The Eastern Cooperative League, 44 W est 143rd Street, New York C ity, is experimenting with such a service as a means of helping prospective cooperative housing associations. As other league offices often have a staff member who is well informed on housing m atters, housing associations would be well advised to get in touch with the league or wholesale nearest them. (See list of such bodies in Appendix E , p. 59.) 43 Or the project m ight operate as an affiliate or subsidiary o f National Cooperatives, In c., at Chicago. CENTRAL ORGANIZATIONS 41 societies contemplating a building program should keep in touch with the nearest wholesale about building materials and appliances. Certain surplus funds o f the member associations might be invested in a federation to be used for the financing o f other cooperatives, and for loan funds to help individuals become tenant-members. In the case o f loans from the funds to individual cooperators, the applicant for a loan should have funds o f his own amounting to at least 40 percent o f the amount he requires to subscribe for his home. He should try to amortize his loan at the rate o f 20 percent a year, so that within 5 years the fund would be restored to its original amount. The federation might also take over the administration o f indi vidual cooperative housing associations, if the members o f such hous ing associations voted for the transfer o f the administration to such federation, or might become part owner o f the properties o f the member associations in order to prevent the dissolution o f associa tions, in the event o f a great increase in the value o f the real estate and its possible sale by the members for their own profit. Another possibility for organized effort in the housing field is the formation o f service associations created to provide maintenance service for housing projects within a given region. 42 ORGANIZATION OF HOUSING ASSOCIATIONS A ppendix A .— M odel Bylaws fo r a C ooperative H ousing Association A rticle 1.— Name and Location of Association Section 1. The name o f this association is__________________________________ Its principal office is located in_______________________________________________ 1 A rticle 2.—Purpose Section 1. The purpose o f this association is to provide its members with housing on the cooperative plan and to engage in such related activities as the members may determine. A rticle 3.—Membership Section 1. Membership qualifications.—The association shall consist o f the present membership and all other persons who hereinafter may be admitted to membership. Any person approved by the association may become a member o f this asso ciation by agreeing to comply with the provisions o f these bylaws, purchasing _________shares o f its capital stock, applying for a dwelling,1 2 and agreeing to subscribe for additional shares proportioned to the cost of the dwelling he is to occupy. Sec. 2. Bights and duties of members.— Every member must agree to obey the rules of the association as set forth in these bylaws, or elsewhere, and the decisions of the general membership meeting or of the board of directors. He must also do his utmost to promote the aims and purposes of the association, the success of its operations, and the welfare of its members. The books o f account, stock book, and transfer ledger of the association shall be available for inspection daily at reasonable hours by any member o f the association who has been a member for at least 6 months prior to his demand. Sec. 3. Withdrawal or expulsion from membership.—A member wishing to terminate his membership shall make written application to the board of directors, which shall have the right to establish the terms according to which the repurchase of his stock and other equity, if any, may take place, subject to the provisions of article 5, section 3. At any time the board of directors may prefer charges against a member if the board is of the opinion that such member has violated any of the provisions of these bylaws, or that he has been guilty o f conduct detrimental to the asso ciation. Subject to the provisions of article 5, section 3, his lease may be can celed by notice, upon tender of the par value of his stock and other equity, if any, minus his proportionate share of any deficit, as determined under article 5, section 3, and his membership shall be terminated. A rticle 4.— Fiscal Year Section 1. Fiscal year.— The business period o f this association shall begin w ith ______________________ o f each year and end o n _______________________ A rticle 5.— Capital Capital stock.—The capital stock in this association shall be _________________ dollars, divided in t o ______________ shares at a par value of _____________ dollars each.3 Sec. 2. Member's shareholdings.—The number o f shares to be held by an indi vidual member shall be based upon the equity required by the association in relation to the cost of the dwelling he is to occupy. Sec. 3. Transfer or repurchase of shares.— It shall be the policy, when requested, to redeem the capital stock owned by the members whenever this can be done without jeopardy to the association. A member wishing to withdraw shall be required to give 60 days’ notice o f such intention. The association may Section 1. 1 Either “ Inc.” or “ Incorporated” should appear in the name of the association as an indica tion that the liability of the members is limited. If the association is not incorporated it functions as a company in which each member is liable for the entire obligations of the organization. 2 This provision insures that the members and tenant-owners shall be an identical group. 3 Cooperative shares never go above par value. This provision is inserted here m ainly to comply with the technicalities of legal procedure. Some States set the value of the individual shares o f stock for societiesi which incorporate under the general cooperative law, and the State law under which incorporation takes place should be consulted before the value of the share is fixed. APPENDIXES 43 redeem shares at an earlier date if the board of directors decides that they may be withdrawn without injury to the association. Every effort shall be made to accommodate members leaving the community or in distress. Transfers o f shares shall be subject to the approval of the board o f directors. The issue and transfer of all shares must be registered on the books o f the asso ciation. No shares shall be transferred until all claims o f the association against the owner of such shares shall have been paid.45 The board of directors may purchase any share or shares from the reserve fund of the association. The association shall have an absolute lien on the shares, loans, or deposits o f any member for any debt due the association by him, and any sum credited to such member may be applied on or toward the payment o f such debt. The association shall have the first option on any shares of stock offered for sale. Shareholders desiring to withdraw from membership or to dispose o f surplus shares must first offer their shares to the association, through its board o f directors. The amount to be paid for such stock shall be determined by the board o f directors, by the following computation: The par value of his paid-up stock, minus the proportionate share o f the deficit (if any) based on total stock out standing. This computation shall be made as o f the end of the fiscal year, the date of which is nearest to the date of acceptance of the member’s withdrawal. The deficit figure used in this computation shall be that figure found in the annual report of the fiscal year used, after the board of directors has taken action in accordance with section 5 o f this article.6 I f the association, through its board o f directors, is unable or refuses to redeem such shares, the shareholder shall then have the right to dispose o f them to any person eligible to membership in the association. Transfers of the shares o f this association shall not be binding until made upon the books of the association with the approval o f the board of directors, and no transfers shall be completed until the old certificate or certificates have been endorsed and surrendered and a new certificate issued in the name of the purchaser. The board of directors, also, shall at all times have the authority to repur chase the shares of stock and to cancel the membership of any shareholder (1) who has died, (2) who has failed to meet his payments on stock subscrip tions within the specified period or time, or (3) who has, for any other reason, been judged unfit for membership. Provided, however, that such member shall have the opportunity to appear in his own defense before the next regular or special meeting o f the association and that the board o f directors is sustained in its action by a majority vote o f the members present. The board of directors shall not repurchase the shares o f any withdrawing member nor of any other member when in its judgment such a reduction o f the association’s capital would in any way endanger the financial condition o f the association.® Sec. 4. Loan capital.—The association may accept loans from its members or from nonmembers when in the judgment of the board this is to the best interest o f the association, provided, however, that the total amount of such loan capital shall at no time e x ce e d ______ percent o f the total paid-in share capital, and provided, further, that any loans to be used for capital improvements or for financing new activities must first be authorized by vote o f the membership. Notes or other evidences o f indebtedness shall be given by the association for such loans, but no such note shall be for a period o f less than 90 days.7 4Many an association having no rule such as this, has felt itself obliged to redeem the capital stock of a withdrawing member. Not only should there be such a provision in the bylaws, but it should be scrupulously followed. 5The redemption price of shares is often regulated by the laws of the State. Some States compel redemption at par value, regardless of the fact of a deficit or surplus on the books of the association, others at book value. 6 It would seem that this provision is so obviously sensible that it is not needed in the bylaws. However, many a board of directors has acted directly contrary to its own best judgment in the face of persistent demands on the part of some strong-willed shareholders. A clause such as this in the bylaws will help to stiffen the backbone o f a board of directors, and a resolution by the board expressing its judgment and the reasons therefor would probably meet the situation. 7 Wherever agreeable to the depositor, these notes should be made for longer periods of tim e — 6 months or 1 year, or 2 years or more; they could be redeemable “ 90 days after demand.’* Notes or bonds running 20 years or more are advisable where the money is used for building. Bonds are safer than short-term notes, because they insure a longer loan, and they have a definite maturity date. Most cooperative associations will not undertake to issue bonds, but they should try to give these notes something o f the same stability. O f course, as long as this form o f capital is needed, members should be urged to renew their notes well in advance of the date o f expiration. 44 ORGANIZATION OP HOUSING ASSOCIATIONS Sec. 5. Returns on share and loan capital.—Any return on share capital shall not e x ce e d ______ percent per annum® and shall be paid only from earnings. Such return shall not be cumulative. Loan capital shall receive interest at a rate fixed by the board o f directors, but shall not e x c e e d ______ percent per annum; such interest may be cumu lative.® Sec. 6 Death.— Upon the death of any shareholder leaving heirs or assigns, the association shall, upon request, redeem at par value within 1 year such shares as are held in his name, if permitted by law or if possible without jeopardizing the financial position of the association. A rticle 6.—Disposal of Net Savings S ection 1. The board of directors shall at the end o f each fiscal period provide fo r the distribution o f the net savings remaining after expenses have been met, according to the following method: (a) General surplus reserve.—From the net savings shall be allocated to the general reserve account a sum not less than 10 percent o f such savings until the reserve is equal to the amount o f paid-in capital; and thereafter not less than 5 percent.8 *101 The general surplus reserve shall consist o f money especially allotted to it from net savings or earnings o f the business, initiation fees, fines, contri butions from individuals, and any other funds appropriated to it by action o f the board of directors or the general membership meetings. This reserve shall be used to absorb operating deficits of unsuccessful years, losses caused by fire, theft, or other reasons; for the extension of the association as a consumers’ cooperative; or for other developments directly associated with the cooperative movement, upon vote by a general meeting of the membership.11 The general surplus reserve shall be the indivisible property o f the association as a whole.12 (b) Educational fund.—From the net savings a sum not less than 5 percent thereof shall be allocated to an educational fund. In addition, this fund shall receive the amounts o f patronage refunds standing to the credit o f nonmembers who have failed to become members within the period specified in paragraph (c ) o f this section. This fund shall be placed at the disposal of the educational committee o f the association, to be used for purposes o f education among the members and the public.13*1 8 (c) Patronage refunds.— Subject to determination by the membership meeting, the sum remaining after paying the return on share capital and after providing for the reserve and educational fund, as provided in section 1 (a) and (b) above, shall be used collectively for social purposes or be divided among the members who are not in arrears, in proportion to the amount o f their monthly payments during the fiscal period; Provided that these savings returns or patronage refunds may be paid imme diately in cash, or in certificates of indebtedness, or may be placed in a revolving fund upon the books o f the association to the credit o f the patron members, to be paid at some future date at the discretion o f the board o f directors; and . 8 In no case should the maximum rate here specified exceed the current rate. However, see discussion relative to returns on share capital (p . 3 5 ). 8 Loan capital is entitled to its interest before share capital. In fact, the interest on it should be charged to operating expenses, whereas the return on share capital must come out of net surplus savings; it cannot lawfully be paid from the general reserves. 10 Before the amount to be placed in the reserve is determined, the State law under which the association is incorporated should be consulted, as some o f the laws have a definite provision on this point. 11 Under this section it is possible for the association to make an appropriation to the central, national, or district cooperative educational body. Generally, however, such appropriations should be made out o f current surplus savings or earnings. Funds should not be appropriated from the reserve as donations to organizations or causes outside the consumers' cooperative movement; such action establishes a precedent from which it is difficult to disentangle the association in the future; furthermore, it may cause disagreement and division in the member ship. Donations to pure philanthropies by unanimous vote of the membership should be the only exceptions to this rule. 12 The indivisibility o f the reserve fund is im portant. Its meaning should be made clear to the membership, for this is one particular in which the cooperative business differs radically from profit business. Many associations have made the mistake o f crediting each shareholder with "h is share" o f the general surplus reserve and actually turning this over to him in the form o f cash when he withdraws. In other associations, the membership m eeting has voted to divide the reserve. Either practice is objectionable, for it allows such persons to profit from the funds built up! from patronage o f previous members and is in violation o f that Rochdale principle which requires that cooperative shares shall never exceed the par value. Monetary benefits to members o f cooperatives should be the result o f patronage, not o f the investment. 18 Some associations regard educational work as part of the regular operating expenses and do not, therefore, make a definite appropriation at the end o f the fiscal period. APPENDIXES 45 Provided, further, that in case o f a patron who is not the owner o f shares sufficient to qualify for membership in the association, patronage refunds shall be credited to the payment o f such stock. I f a nonmember fails to become a member w ith in ________ , the amount to his credit shall be transferred to the educational fund. No patronage refunds shall be declared or paid for any period in which there was an operating deficit, nor as long as the association has a general deficit. Article 7.— Subleasing of Dwellings Section 1. A member may sublet his dwelling at the regular rate plus a nominal charge for furnishings. Subletting shall be permitted for a period to be decided upon by the directors.14 Members subletting shall be responsible to the association for payment o f rent. Persons renting must meet with the approval o f the directors. Article 8.—Meetings of Members Section 1. Regular meetings o f the members shall be held quarterly. The first regular meeting o f the year shall be the annual meeting at which time the general business o f the association shall be transacted, directors elected, etc.*11 ® Notice o f regular meetings shall be posted prominently in the association’s place o f business and shall also be sent to the address of every member as registered on the books o f the association at the time the notices are sent. Notices shall be sent at least 6 days before the date set for the meeting. S ec. 2. A special meeting o f the members may be called by the president when ever he shall deem it necessary or as directed by resolution o f the board o f directors or upon a petition signed by 10 percent o f the members.16 Such meeting shall be called by a notice published 10 days before the meeting.17 Such notice shall specify the time and place and object o f such meeting and no business other than that specified shall be transacted thereat.18 Sec. 3. Twenty percent of the members, or 50 members, whichever is less, present in person shall constitute a quorum for the transaction o f business. Sec. 4. At all meetings o f the members and the board o f directors the order o f business and parliamentary practices shall be governed by Roberts’ Rules o f Order, Revised.19 14 This practice is to be allowed only in cases o f necessity, and there should be a definite time lim it to the period for which subletting is to be permitted. 1# “ Third Thursday o f January” is the way one association designates the date o f meetings. The cooperative laws o f some States (N ew York is one) demand that the exact day be desig nated in this way. Others permit the directors to use their discretion in each instance. I f the State law does not require this, it may be left out and in its place may appear the words “ on such date as may be determined by the board of directors.” The date should, however, be at least 1 month, preferably 6 weeks, after the end of the fiscal period. M The right to initiate a call for a special meeting should be recognized in every cooperative association. A very small association should probably require the signature of 20 percent o f the members, whereas a very large association m ight require only 5 percent or even less. ** 10 days* instead of 6 days* notice is suggested here because o f the extraordinary nature o f the occasion. The members usually are not expecting a call to such a special meeting, as they are at the time of a regular m eeting, and they should, therefore, have more time to prepare for it. “ This last paragraph is a legal requirement in many States, and it should be required in every cooperative association. A special meeting generally has some special purpose, and thia purpose must be clearly stated in advance. And then, once the meeting is in session, no person present should be permitted to surprise the meeting with some other business, the nature o f which the members may not be prepared to discuss. In fact there m ight be many members absent from the special m eeting whose interests would be vitally affected by the “ surprise” business and who would not be absent if they knew it was to be discussed. Special meetings must be sharply restricted to the specific purpose for which they are called. The order of business at regular membership meetings may well include the follow ing: 1. Reading o f minutes of last regular or special meeting. 2. Unfinished business left from previous meetings. 3. Report of president. 4. Report of secretary. 5. Report of treasurer. 6. Report of manager. 7. Report o f audit committee. 8. Report o f education committee. 9. Report of membership committee. (It is very easy for a meeting to confine itself exclu sively to business m atters. Therefore, it is essential that a place be definitely allotted on the agenda for discussion of education and membership. It is important to have a sound educational policy as well as a sound financial policy. Expansion and development o f the membership are as essential as expansion and development o f the business.) 10. Report of other committees. 11. Election to fill vacancies on board o f directors or committees, for the unfinished term , and of new directors and committee members. 12. Action on distribution of net savings. (The board o f directors should always present its recommendations on the distribution o f the net savings, giving the reason therefor. The meeting is then ready for a worth-while discussion o f the whole m atter and may accept the recommendations, m odify them, or reject them .) Continued on p . 46, 46 ORGANIZATION OF HOUSING ASSOCIATIONS S e c . 5. Rights and limitations of the membership meeting.— The membership meeting has both the right and the responsibility to elect directors or members of committees and to remove them from office if and when they are derelict in their duties; to hear and pass upon the reports of officers and the manager o f the association and of any committees which are responsible to i t ; to determine the method of dividing the net surplus or earnings; to make the final decision regarding any drastic changes in the financial p olicy; to act as final arbiter in any disputes or disagreements which may arise between the board of directors and any committees or individual members; to determine what amendments shall be made in the bylaws; and to exercise its final authority in all other matters vitally affecting the association as a cooperative fraternal body and as a business organization.30 S e c . 6. Participants in membership meetings.— Every member who has met his full obligations as regards share capital, as specified in article 5, section 2, and who has not in other respects been judged by a membership meeting to be delinquent or acting contrary to the interests of the association, shall be qualified to vote and to participate in the meetings o f the association.1 01 2 9 S e c . 7. Voting rights.— Election o f directors and members of committees shall be by ballot unless unanimous consent is given to a vote by show o f hands. Action on all other matters shall be by ballot, by an “ aye” or “ no” vote or by a rising vote, as the majority o f members present may decide. Each member shall have one vote on all voting occasions, and never more than one vote,22 and there shall be no voting by proxy.23 At the discretion o f the board o f directors, or upon the presentation o f a peti tion signed by 10 percent o f the membership, the secretary shall, along with the notice of meetings, include a copy of any specific proposal to be acted upon by the meeting. A member unable to be present at any meeting shall have the right to cast his vote on such specific measures by mail, Provided, that his vote shall be signed by him and shall be received by the secretary in time to be counted at the meeting. A r t ic l e 9 .— Management, and Duties of Officers Directors and officers.— The responsibility for the management shall be vested in a board of directors consisting of 7 (or 9) members. The directors shall serve for terms of 2 years, half o f the board being elected at each annual meeting. They shall be eligible to serve until the election o f their successors.24 The board shall elect its officers—a president, a vice president, a secretary, and a treasurer—from its membership, and shall be authorized to appoint an executive committee. The office of the secretary and treasurer may be combined. S e c t io n 1 . 19 Continued. 13. Action on other recommendations o f board. (Other matters to he presented may cover a wide range o f subjects, such as proposed amendments to the bylaws, construction of new buildings, the undertaking of some new cooperative activity, expulsion of a member, author izing the sending of a delegate to a national or district convention^ etc.) 14. Other new business. 20 A t first glance this section may seem unim portant; it is not. Many associations have been seriously crippled because the membership meeting did not have its duties clearly defined; there fore, it neglected some o f its most important duties (such as selecting the proper people for the board of directors or not holding them strictly to account after they were elected), or, on the other hand, handicapped the board’s effectiveness by interfering with its work. 21 Even if the board of directors has already decided that any member should be expelled, the offending member should not be disqualified from participating in the meeting unless the meeting has approved the action o f the board. The board should not be placed in such power as to make it possible for it to determine who may or may not vote at a m eeting. This power should rest with the membership only. „ . , 22 The 1-vote rule should be enforced under all circumstances, unless the State law contains specific provision to the contrary. It is one of the fundamental principles of consumers* cooperation. . . . . . . 23 Proxy voting should not be permitted m cooperative associations because it may be used to defeat democratic control, and it should not be adopted as a compromise under any circumstances, unless the requirements of the State law make this unavoidable (as in Illinois and North Carolina, providing for written proxies, but in the latter State proxy voting is allowed only in case o f sickness or unavoidable absence, and no member may be permitted to vote more than 1 p ro xy). I f the State law requires vote by mail under certain circumstances, a provision to that effect should be inserted. (In California, District of Columbia, Illinois. Michigan Minnesota, M issouri, Montana New York (stock ), New York (nonstock), North Carolina, North Dakota, South Dakota, W ashington, and W isconsin, an absent member may be permitted to vote by mail if notified in w riting of the question to be voted on and if a copy of the motion is attached to the vote; all the States except New York (nonstock) and District of Columbia require that the vote be signed and Minnesota requires that it be certified by the voting member.) 24 Some* societies do not allow more than 2 consecutive terms, requiring that candidates retire for 1 term before they become eligible for further service. The board o f directors and all other committees should always be an odd number. APPENDIXES 47 The board is authorized to fill the position o f a director who resigns before his term expires, such appointee to serve until the next regular election only. Sec. 2. Duties of board.—The board shall administer all business carried on by or on account o f the association. The directors shall in all their actions be under control and direction o f any regular or special meeting o f the members. The board shall hold a regular meeting each month. Special board meetings may be called by the president and shall be called by him on request of any three directors. At meetings o f the board a majority shall constitute a quorum. The directors shall act for the association and be responsible to it for the performance of the following duties: 1. To watch closely the financial condition of the association and the operating results of its business, and to take action required to keep these in a healthy condition. 2. To appoint the following officials and to assign their duties and determine their salaries: (a ) A manager or general manager to assume administrative control o f the business. (b) An auditor or auditing agency, as soon as the affairs of the association require and the finances permit the employment o f a paid auditor. The board should consult the auditing committee in making this appointment, but the paid auditor shall be appointed by and be directly responsible to the board. Nothing in this provision shall be interpreted to prevent the board from making other appointments if and when the welfare o f the society makes this necessary, but the filling o f these two positions shall at all times be the direct responsibility o f the board. 3. To require the manager and all officers and employees charged with responsi bility for the custody o f any o f its funds or property to give adequate bonds. 4. To provide adequate insurance o f the property o f the association and ade quate insurance against liabilities. 5. To determine and supervise the more important policies o f the organization, insuring the conduct o f its affairs in accordance with the bylaws, with fairness to members and employees; to provide the best possible conditions of labor consistent with other requirements o f these bylaws while demanding equivalent results in efficiency and faithfulness. 6. To decide upon the major steps in business activity and expansion, including the investment o f reserve funds; borrowing money, subject to article 5, section 4 ; making important financial commitments and entering into new fields o f busi ness enterprise. 7. To maintain at all times an active program o f cooperative publicity and education; and to maintain relations with other cooperative societies, federations, leagues, and wholesales aimed to promote the best interests o f the association and of the cooperative movement. Sec. 3. The board shall make a comprehensive report at the annual meeting o f the association and shall submit a budget or an approximate estimate of the income and proposed expenses for the coming year. A copy o f the proposed budget shall be sent to every member together with a notice o f the annual meeting. Sec. 4. Duties of president and vice president.—The president shall act as chairman at all meetings o f the association and o f the board o f directors, but should he be absent the vice president shall take the chair; should he also be absent the officers and directors present shall elect one from among themselves to act as chairman on that occasion. The president, or chairman acting in his absence, shall sign all contracts. Sec. 5. Duties of secretary.—The secretary shall attend all meetings o f the association and of the board o f directors, and shall record the names of all the directors present and the minutes o f their proceedings; he shall also countersign all contracts sanctioned and entered into by the board; he shall likewise receive all proposals for admission into the association. He shall attend to all correspondence, keep the accounts, documents, and papers o f this association in such a manner and for such purposes as the directors may appoint. He shall prepare the regular statement o f the association’s affairs. The secretary shall on all occasions in the execution o f his duties act under the superintendence, control, and direction o f the board o f directors. Sec. 6. Duties of treasurer.—The treasurer shall be required to attend all the regular meetings o f the association and o f the directors. He shall be responsible for such sums of money as may from time to time be paid into his hands by the 48 ORGANIZATION OP HOUSING ASSOCIATIONS secretary or by any other person on account of the association and for the investment o f the same under the authority o f the directors. He shall be responsi ble for having adequate financial reports presented to the board at regular periods or as the board may direct. Sec. 7. Election and duties of auditing committee.—An auditing committee o f 3 members shall be elected by the members o f the association. They shall each serve f o r ______ and shall at all times have access to the books, vouchers, and accounts o f the association; shall examine and audit the same and every balance sheet of the receipts and expenditures and effects o f the association at least every 3 months; and shall report to the membership meeting, with recommenda tions. The auditors shall be responsible for the daily and perpetual accounting system kept by the manager and shall check same periodically. A bticle 10.—Merger with Another Association S ection 1. Upon affirmative vote by the members of the association, the board of directors may arrange for the consolidation of this association with another recognized cooperative in the same or nearby territory, i f it appears that this action would prevent duplication o f activities, promote efficiency, or otherwise be in the interest o f the cooperative movement. A bticle 11.—Amendments Section 1. These association bylaws may be amended, repealed, or other wise changed by a two-thirds vote of the members at any regular or special membership meeting, due notice o f which has been given in advance. Provided, That no change shall be made in article 5, section 1 ( c ) and article 7, section 7, unless such change is approved by a vote o f two-thirds o f the entire membership present or voting by mail, and provided, f urther, that no amendment o f the bylaws shall be valid if it violates a statute or the articles o f incorporation. A bticle 12.—Dissolution of Association Section 1. Dissolution.— At any regular or special meeting, due notice o f which has been given in advance, this association may be dissolved by a two-thirds vote o f the entire membership, present or voting by mail.26 Sec. 2. Disposal of reserves.—Upon such dissolution duly authorized, any reserves o f the association in excess o f the outstanding financial obligations shall be turned over to such recognized cooperative organization as the membership may determine; or to some Government or other public agency, to be used for some social purpose; or be distributed among those patrons who have been members or subscribers at: any time during the past 6 years, on the basis o f their patronage during that period, as the membership may determine.27 Appendix B.— Sample Share Subscription Agreement Subscription Agreement28 The undersigned, having read and approved the plan o f purchase and organization o f _________________________ Cooperative Housing Association, for one dollar ($1) in lawful money o f the United States to him in hand paid, and for other valuable consideration received, and in consideration of the mutual agreement herein contained, each for himself agrees to and with the members of t h e ________ ________________ Cooperative Housing Association and with the ______________________ Cooperative Housing Association, Inc., to purchase______ shares of capital stock at $5 per share of this cooperative corporation, and to pay for same at the full value thereof in cash, amounting t o _______________ _____________ dollars ($__________), said payment to be made by cash, money orders, or check, delivered as follow s: First payment: to the order of t h e ___________________________Cooperative Housing A ssociation,________________________ dollars ($________ ), o f the sub scription upon subscribing to this agreement. Second payment: To the order of th e ___________________________Cooperative Housing A ssociation,________________________ dollars ($________ ), o f the said subscription on or b e fo r e ________________________ 19____ . 26 But some State housing laws also require permission of the State Housing Board (see p. 3 9 ). 27 The purpose o f this provision is to prevent the dissolution of the association solely for the purpose o f dividing the reserves am ong those who happen to be members at die tim e, and thus bar them from profiting from the results of the activities of previous stockholders. 28 Should be modified to conform to circumstances of individual cases. APPENDIXES 49 Third payment: To the order o f t h e ___________________________Cooperative Housing A ssociation,________________________ dollars ($________ ), o f the said subscription on or b e fo r e ________________________ 19____. Fourth payment: To the order o f th e __________________________ Cooperative Housing A ssociation,________________________ dollars ($________ ), o f the said subscription on or b e fo r e ________________________ 19____. It is further understood and agreed by and between the undersigned, the members o f t h e ________________________ Cooperative Housing Association, and t h e ___________________________Cooperative Housing Association, Inc., that the undersigned is to pay the additional sum o f __________________________ dollars ($_______ ), payable simultaneously with the first, second, or third payments as aforesaid, said additional sum to cover fees, carrying charges, management and organization charges, and minor repairs incident to acquiring title to prem ises________________________ Cooperative Housing Association, for which said additional payment it is understood and agreed no capital stock is to be issued to the undersigned. _______________________ payment: To the order o f t h e ______________________ Cooperative Housing A ssocia tion _______________________ dollars ($________ ) o f the said subscription on or b e fo r e __________________________ _ 19___ , to be paid i n ___________________________monthly installments, the payment to be applied to the retirement o f t h e _____________________________ mortgages on premises. T h e ________________________ payment is a charge included in the rental as set forth in the lease executed between the undersigned and the association. In consideration o f said first, second, third, and fourth payments made as aforementioned by this member, the said subscriber shall receive a certificate from said corporation o f ___________________________shares o f its capital stock o f the par value o f $5 each, and shall receive a lease for the term o f 99 years20 on premises N o .________________________ at the annual monthly charges set forth in said lease. In consideration o f s a i d ________________________ payment made as afore mentioned by this member, the said subscriber shall receive a second certificate from said corporation o f ________________________ shares o f its capital stock o f the par value of $5 each. But if said subscriber shall default in any o f the payments called for in this subscription, and such default shall continue fo r 10 days after notice to pay sent by registered mail by t h e ________________________ Cooperative Housing Association to said member at address as given below, then, forthwith at the option o f t h e ________________________ Cooperative Housing Association, said member shall lose any and all rights to said certificate and to said stock, and to receive the same, and shall forfeit any and all right to a lease on or to continue occupancy o f the p re m ise s__________________________ Cooperative Housing Association, and the deposit shall, at the option o f th e _________________ Cooperative Housing Association, be returned, less the subscriber’s proportionate share o f the expenses incurred in the negotiation for the purchase o f the property, in search, insurance and passing title; in the maintenance of such property after it is purchased, and any other expense reasonable in these premises. T h e ________________________ Cooperative Housing Association may, at its option, waive the foregoing obligation o f the subscriber in the event that he shall secure an assignee o f said subscription satisfactory to the association, who will assume each and every obligation herein contained. N a m e _____________________________________[l.s.] Home a d d ress_____________________________________ D a ted ___________________________ In the presence o f __________________________ Appendix C.— Model Lease for a Cooperative Housing Association This lease made t h e _________day o f _________________________ 19__ , between t h e ________________________ Cooperative Housing Association, Inc., a domestic corporation hereinafter called the “ cooperative” , a n d ________________________ residing a t ________________________ , hereinafter called the “ tenant.” 2 9 29 Or “ a lease renewable at the end o f each [2 or 3] year period.” 50 ORGANIZATION OP HOUSING ASSOCIATIONS Whereas, the cooperative has been incorporated for the purpose o f owning and operating dwelling properties in t h e _____________________________ _ city o f ________________________ and State o f _________________________ _ known as N o s._______________________ Street,________________________ _ hereinafter called the properties, upon a cooperative basis, with the intent that the stockholders o f the cooperative shall have the right to lease and occupy dwellings therein under the terms and conditions hereinafter set forth, as long as they, respectively, are stockholders; and Whereas, the tenant is the owner and holder o f _________shares o f common capital stock o f the cooperative o f the face value o f $_________, and is entitled by reason thereof to a lease o f the dwelling hereinafter described, subject to the bylaws of the cooperative; Now, therefore, in consideration o f the premises and the covenants, conditions, and agreements herein contained, the cooperative hereby lets to the tenant and the tenant hereby hires from the cooperative the dwelling, now known a s ________________________ _ hereinafter called “ the dwelling” , consisting o f ______ rooms a n d _______ baths to be occupied strictly as a private dwelling by the tenant and the family of the tenant, except as hereinafter provided, for the term o f ____ years a n d _____ months,1 beginning on t h e __________day o f _________________ 19__ , and ending on th e ______ day o f ____________________ The parties hereto mutually covenant and agree as follow s: 1. The tenant shall pay a monthly rent of $_________in advance on the first day o f each month of the said term, subject to increase and decrease as here inafter provided. Such monthly rent may from time to time be increased to such amount as the board o f directors o f the cooperative, by the unanimous vote o f all the directors, may determine, provided the rents o f all the other cooperative tenants are increased proportionately according to the basic per centages of the present rentals o f all the dwellings as the same appear on the rent schedule hereto attached. I f said board of directors shall not be unani mously in favor o f an increase in the monthly rent, an increase may nevertheless be approved by vote o f two-thirds of the stockholders o f record o f the coopera tive, expressed either in writing or at a meeting duly called for the purpose o f considering the same, in which event such increase, pro rated as above prescribed, shall become fully operative from such time as may be determined by such vote. Such monthly rent may from time to time be reduced if in the judgment of a majority o f the board o f directors o f the cooperative such reduction is justified, provided the rents o f all the other cooperative tenants are also reduced propor tionately as above prescribed. 2. In consideration and on condition that the tenant will pay and perform the rents, conditions, covenants, and agreements in this lease contained, the cooperative covenants that the tenant may, at all times during the said term, peaceably have and enjoy the dwelling. 3. T ie cooperative shall maintain and manage the properties on a high level, with a suitable manager or janitor, supply proper and sufficient amounts of cold and hot water and furnish steam or other heat to warm the premises during the heating season.1 23 * The cooperative reserves the right to stop the above sup plies and services at such times as may be necessary by reason o f shortage o f labor, accidents, or alterations or repairs deemed desirable by the cooperative. The cooperative shall not be held responsible for interrupted supplies or services caused by any reason whatsoever, nor shall there be any diminution or abatement o f rent on account of such interruption. 4. The cooperative shall keep in good repair the foundations, sidewalks, roofs, gutters, cellars, chimneys, cornices, boilers, pumps, tanks, heating system, and all plumbing intended for general service,8 it being agreed that the tenant shall give the cooperative prompt notice of any accident or defect requiring such repairs to be made, and shall at all reasonable times allow the agents o f the cooperative to enter and inspect the dwelling in order to ascertain what such repairs are needed and to make such repairs and upon reasonable notice to remove such portions o f the walls, floors, and ceilings o f the dwelling as may be required for the purpose of making such repairs, which portions, so removed, the cooperative shall, as soon as such repairs can reasonably be finished, replace in as good condition as before such removal, all such repairs to be at the 1 May be either a lifelong (99-year) lease or one renewable every 2 or 3 years (see p . 2 8 ). 2 Should be modified to conform to individual situation of association. 3 IS an apartment house, the words, “ fire escapes, entrances, main halls and stairways** should also be added. APPENDIXES 51 expense of the cooperative unless the same shall have been rendered necessary by the act, negligence, or carelessness of the tenant, or of any member o f the family, guests, or employees of the tenant, in which case the expense is to be borne by the tenant. 5. The tenant shall during the term o f this lease keep the interior o f the dwelling and all fixtures and plumbing and other appurtenances belonging thereto in good order and repair, and make all decorations therein, and the cooperative shall not be held answerable for any repairs or decorations in and to the dwelling, except as hereinbefore specifically provided, and in case o f the refusal or neglect o f the tenant during 10 days after notice in writing from the cooperative to make such repairs, or to restore the dwelling to good con dition, such repairs or restoration may be made by the cooperative, and any expense incurred thereby by the cooperative shall be immediately due and payable from the tenant to the cooperative, and shall be deemed to be additional rent for the dwelling. The tenant shall not without the written consent o f the cooperative make any alterations, additions, or improvements. Any alterations, additions, or improvements which may be made by the tenant in, to, or upon the premises shall be the property o f the cooperative and shall remain upon and be surrendered with the premises at the termination o f this lease, without disturbance, molestation, or injury; provided that movable furniture and fix tures put in at the expense o f the tenant may be removed by said tenant but that any injury caused by moving said furniture and fixtures in or out shall be repaired by the tenant. 6. The tenant shall promptly comply with and execute all laws, ordinances, rules, orders, and regulations o f the Federal, State, county, and city govern ments, and o f the board o f fire underwriters, and of all other authorities, and of their departments and bureaus, applicable to the dwelling, or concerning any matter in, upon, or connected with the dwelling, except such as require structural changes or repairs. I f the tenant shall fail promptly to comply with and execute any o f the foregoing requirements the cooperative may, upon 5 days’ written notice to the tenant, enter in and upon the dwelling and comply with and execute the same for the account o f the tenant and any expense thus incurred by the cooperative shall be immediately due and payable from the tenant to the cooperative, and shall be deemed to be additional rent for the dwelling. The tenant shall not do anything or suffer anything to be done in or about the dwelling which will increase the rate o f fire insurance upon the property, or which may be deemed extra or specially hazardous by the usage o f fire insurance companies. 7. The tenant shall notify the cooperative in writing o f any leakage o f the roof coming to his notice, and shall hold the cooperative guiltless therefrom unless the cooperative shall fail, within a reasonable time after such written notice is delivered to it, to repair the roof. The tenant shall hold the cooperative free from liability for any damage to person or property in the dwelling or in the apartment house, caused by gas, steam, electricity, rain, snow, water from the tanks, pipes, plumbing work, vault light or any other sources or by sewerage, falling plaster or any other cause whatsoever; the tenant shall hold his property in the dwelling or anywhere else in the properties at his own risk, and shall hold the cooperative free from any liability for any damage thereto from any cause arising. 8. In case of damage by fire or the elements, the tenant shall give immediate notice thereof in writing to the cooperative. The cooperative shall repair same with all reasonable dispatch at its own cost and expense. I f the damage shall be so extensive as to render the dwelling wholly untenantable, the rent shall cease from the time the cooperative is notified o f such damage until the dwelling is restored to tenantable condition, and thereafter shall begin to run and to be payable as before. In case the properties generally (though the individual dwelling may not be affected) be substantially destroyed by fire or the elements, or be so injured or destroyed that the cooperative shall within a reasonable time decide to rebuild or reconstruct the properties, the rent shall be appor tioned pro rata and paid up to the time of such destruction or injury, and upon such payment being duly made by the tenant, this lease and the term herein granted shall cease and come to an end. No claim for compensation shall be made by the tenant by reason o f incon venience, damage, or annoyance arising from the necessity of repairing any portion of the dwelling or apartment house, however the necessity may occur. 9. If the property or the plot of land on which it stands, or any part thereof, be condemned or taken for public use or quasi-public use, the cooperative shall 52 ORGANIZATION OF HOUSING ASSOCIATIONS be entitled to and shall receive any award that may be made to or for the account o f the tenant for the value o f the unexpired term of this lease. The tenant hereby expressly assigns to the cooperative any award that may be so made to or for account of the tenant for any damages to the term hereby demised. In no event, however, shall there be any abatement or apportionment o f the rent because o f such condemnation or taking. The tenant hereby further agrees that for the purpose of obtaining such award or awards, and for all other pur poses, all the alterations, additions, and improvements now on or which may hereafter be made in and to the premises herein demised are the sole and absolute property o f the cooperative. 10. The tenant shall, at the option o f the cooperative, purchase from the cooperative, or from any person or corporation designated by the cooperative, such electric current as may be required by the tenant for use in the dwelling upon condition that the rates charged therefor by the person or corporation furnishing said electric current shall not, at any time, exceed the rate fixed for the district by the Public Service Commission for a like amount of current measured in the same manner as current would be measured by the Public Service Commission. The tenant agrees to pay for such electric current upon presentation by the cooperative o f a bill for such current, and upon the failure o f the tenant to pay for such current, the amount so due shall be added to the installment of rent next becoming due hereunder, and such amount shall become a part of the said rent and shall be collectible in like manner. 11. The basic percentages o f the present rentals o f all the dwellings in the property may be changed to be effective in any year following the year in which a new building shall have been completed or an existing building con verted to nonresidential purposes on any lot adjoining the property or across the street therefrom, but only subject to the following provisions: A petition for such change signed by at least three tenants shall be filed with the presi dent and with the secretary o f the cooperative at least 3 months before the proposed effective date o f the change. A meeting o f the stockholders of the cooperative shall at once be called for a general discussion o f the proposed change. The board o f directors shall then in their discretion either reject the proposed change or propose a new schedule o f basic percentages. In either event their determination or failure to act shall be reported, at least 2 months before the proposed effect ive date of the change, to a meeting o f the stockholders. The stockholders may then take such action as they see fit, provided, however, that any change in the basic percentages to be effective must receive the affirmative vote o f at least 65 percent o f the stockholders o f record o f the cooperative, at a stockholders’ meeting duly called for that purpose. Such action of the stockholders shall be final unless within 20 days thereafter there be filed with the president and secretary o f the cooperative a written request signed by at least three stockholders, asking for arbitration. In that case arbitrators shall be appointed as in paragraph 29 hereof provided. Their determination shall be final. Such final determination by the stockholders or by the arbitrators shall fix the basic percentages of rentals o f all the dwellings for the period beginning the following January 1 and continuing until such percentages shall again be changed as provided in this section. 12. The cooperative reserves the right to make such rules and regulations as in its judgment from time to time may be needed for the safety, care, and cleanliness of the properties, and for the preservation o f good order and comfort therein, and the tenant agrees faithfully and punctually to observe and comply with such regulations and further agrees that all persons living in or visiting in the dwelling will also punctually observe and comply therewith. 13. This lease is and at all times hereafter shall be subject and subordinate to the lien of any mortgage or mortgages now affecting the premises o f which the dwelling forms a part, or which may at any time hereafter be placed thereon, and further the tenant agrees to execute, at the cooperative’s expense, any instrument which the cooperative or any lender may deem necessary or desirable to effect the subordination o f this lease to any such mortgage, and the tenant hereby appoints the cooperative the tenant’s attorney in fact, irrev ocable, during the term hereof, to execute any such instrument on behalf o f the tenant. 14. For default by the tenant in the payment o f any sum payable hereunder, the cooperative shall have the same remedies as for default in the payment of rent. The various rights., powers, remedies, options, and elections to the coopera tive reserved, expressed, or contained in this lease are cumulative and no one APPENDIXES 53 of them shall be deemed exclusive o f the others, or o f such other rights, powers, remedies, options, or elections as are now or may hereafter be conferred upon the cooperative by law. For any breach or threatened breach of this lease, the cooperative shall be entitled to restrain the tenant by injunction. 15. No surrender o f this lease or the term hereby demised, whether by parole or act, shall be valid or binding upon either party, unless such surrender shall be in writing duly signed by both the parties hereto. 16. All notices may be delivered to either party personally or by registered mail, addressed to the cooperative or to the tenant respectively at the property. IT. The failure o f the cooperative in any one or more instances to insist upon the strict performance of any o f the covenants of this lease, or to exercise any option herein conferred, shall not be construed as a waiver or relinquishment for the future o f any such covenants, conditions, or option, but the same shall continue and remain in full force and effect. 18. The tenant shall not, without first obtaining the written consent o f the cooperative in each and every case, under penalty of forfeiture and damages: (a) Either assign, mortgage, or otherwise encumber this lease, in whole or in part, or any interest therein; (b) Or sublet the dwelling or any part thereof; (c) Or occupy or permit the dwelling or any part thereof to be occupied except for dwelling purposes; (d ) Or permit anyone other than the tenant or a member of his family to occupy the dwelling or any part thereof. Upon the tenant’s default with respect to any o f the foregoing, the coopera tive shall have the option to give the tenant 15 days’ written notice o f the cooperative’s election to end the term o f this lease and, upon the expiration o f such 15-day period, the term o f this lease shall terminate and come to an end and all right o f occupation hereunder on the part o f the tenant shall cease, with the same force and effect as though the term originally reserved herein had terminated, and the tenant shall quit and surrender the premises to the cooperative. The cooperative hereby consents to the tenant’s subletting the dwelling upon the following conditions solely: A. The tenant may sublet the dwelling for a term o f not more than 1 year, subject to the prior approval in writing o f the proposed subtenant by the coop erative, which approval shall not be unreasonably withheld, provided further, that the rent shall not exceed a sum equivalent to the rent payable by the tenant to the cooperative, plus 25 percent of such rent (to compensate for cost o f repairs) plus, if the dwelling is sublet substantially furnished with the furniture of the tenant, an additional 25 percent o f such rent, plus an amount equal to 6 percent per annum on the amount o f stock o f the cooperative stated on page (1) hereof as being owned and held by the tenant. Such sublease shall not be renewed except with the express prior approval in writing o f the co operative, which approval shall not be unreasonably withheld. B. Application for leave to sublet under subdivision A o f this paragraph shall be made on a form to be provided by the cooperative and shall contain the name, address, and occupation o f the proposed subtenant. It shall also con tain a statement that the tenant has not received nor been promised any consid eration or thing o f value, directly or indirectly, from the proposed subtenant or any other person for the making o f the proposed sublease or as subrental therefor except what is mentioned in said application. Such application shall also contain such further information pertinent thereto as the cooperative may require. C. Any sublease made hereunder shall be in a form to be provided by the cooperative and shall contain a suitable provision that such sublease shall terminate in case at any time the cooperative shall determine that because o f objectionable conduct on the part o f such subtenant or o f persons dwelling in or visiting the apartment the tenancy o f such subtenant is undesirable, and upon 5 days’ written notice o f such determination. D. It is understood by the tenant that it is one o f the cooperative principles and purposes which the cooperative was incorporated to accomplish that no tenant shall derive a profit directly or indirectly from the making o f a sublease and the tenant agrees that he will not at any time take any profit. A breach o f this covenant shall entitle the cooperative to terminate this lease as provided in paragraph 19 hereof. 19. The granting o f this lease and the term herein demised are conditioned that at the cooperative’s option, upon the happening o f any o f the events men 54 ORGANIZATION OF HOUSING ASSOCIATIONS tioned in subdivisions A to G, both inclusive, o f this paragraph, the cooperative may give the tenant at least 15 days* written notice of the cooperative’s election to end the term o f this lease, and upon the date specified in such notice the term o f this lease shall terminate and come to an end, and all right o f occupation hereunder on the part of the tenant shall cease, with the same force and effect as though that were the date originally set in this lease for the termination thereof, and the tenant shall quit and surrender the dwelling to the cooperative, unless before the expiration o f such period the condition which was the basis for such notice shall have ceased to exist. In the event of such termination the cooperative shall have the right to reenter the dwelling, either by force or otherwise, and dispossess and remove therefrom the tenant or other occupant thereof and their effects. The tenant shall, however, remain liable to the cooperative for any expense that the cooperative may be put to in reentering or reletting the dwelling and for any deficiency between the equivalent o f the rent hereunder and the sum or sums received by the cooperative on a reletting o f said premises for a period o f 3 years after such termination. The tenant shall pay to the cooperative, on account o f such deficiency, on the first day o f each and every month during such period the then current monthly rental fo r the dwelling less any sums then actually received by the cooperative on account o f such reletting, if any. Separate actions may be maintained from time to time to recover such respective amounts, without waiving the right to maintain further actions to recover such respective amounts subsequently accruing. The tenant hereby expressly waives all right to redeem the premises under sections 1437 and 1438 o f the Civil Practice Act,4 or otherwise, after a warrant to dispossess shall have been issued, or to a second and further tri^l after an action in ejectment. The conditions herein referred to are the follow ing: A. In case at any time during the term o f this lease the tenant shall cease to be the owner o f the shares o f stock issued to him and standing in his name on the books o f the cooperative, to which stock this lease is appurtenant, or this lease shall pass by operation o f law, or otherwise, or be assigned to anyone who is not then the owner o f the said stock, except that, if upon the death o f the tenant, this lease, together with the tenant’s stock, pass by will or intestate distribution to any person or persons not exceeding three in number (or if to more than three in number such lease and stock pass by assignment among themselves to colegatees or codistributees not exceeding three in number) such legatees or distributees may, by assuming the terms o f this lease in writing within 15 months after the tenant’s death, become the tenant hereunder, without, however, releasing the estate o f the deceased tenant from any liability under this lease, provided, however, that such estate shall not be liable for any liability accruing after 3 years from such date o f death. In any event, this condition shall be suspended for a period of 15 months from such date o f death; B. In case the tenant becomes or is adjudicated insolvent or a bankrupt, or makes a general assignment for the benefit o f creditors, or takes the benefit o f any insolvency or bankruptcy act, or in case a receiver, trustee, or assignee is appointed for the tenant’s property, or in case an execution or attachment issues against the tenant’s property whereby the dwelling or any o f the tenant’s rights under this lease or said share o f stock shall be levied upon, advertised for sale, or sold by operation o f law or otherwise, or in case said share o f stock is sold pursuant to the terms of an agreement whereby said stock shall have been pledged as collateral security; C. In case o f any assignment o f this lease, or o f any subletting hereunder, without the consent hereinbefore required, except as herein expressly allowed; or in case o f any misrepresentation in any application for leave to sublet; D. In case at any time the cooperative shall determine, upon the affirmative vote of at least 75 percent o f the stockholders o f record, at a stockholders’ meeting duly called for that purpose, that the tenant has violated any o f the provisions o f its bylaws or has been guilty of conduct detrimental to the coopera tive, or that because o f objectionable conduct on the part o f the tenant or o f persons dwelling in or visiting the dwelling, the tenancy o f the tenant is un desirable ; E. In case the tenant shall default, for a period o f 90 days, in the payment o f the rent or o f any other proper charges against him, or in the payment, either before or after the commencement of the term hereof, of any install * Relates to New Y ork; in any other State the appropriate citation o f the State law should be made. APPENDIXES 55 ment of his subscription to the stock o f the cooperative appurtenant to this lease; F. In case the tenant, either before or after the commencement o f the term hereof shall be in default in the performance o f any other covenant, condition, or agreement hereof, for 30 days after written notice o f such default shall have been given to the tenant by the cooperative; G. In case this lease is made to a janitor or superintendent, upon the discharge o f such janitor or superintendent by the board o f directors, with or without cause, or upon the termination o f his employment in any other manner. 20. In case at any time the cooperative shall determine, upon the affirmative vote o f at least 75 percent o f the stockholders o f record, at a stockholders’ meeting duly called for that purpose, to sell the properties, the cooperative may terminate this lease by written notice o f such intention on its part, which notice shall be given at least 60 days before the date at which such termination is specified to take effect in such notice, and upon the date specified in such notice o f termination the term o f this lease shall terminate and come to an end and all right of occupation hereunder on the part o f the tenant shall cease with the same force and effect as though that were the date originally set in this lease for the termination thereof, and the tenant shall quit and surrender the dwelling to the cooperative on such date. 21. Should this lease be terminated as provided in sections 18, 19, and 20 o f this lease, then the tenant shall deliver this lease and a duly executed and acknowledged surrender thereof to the cooperative, and deposit with and sur render to the cooperative, duly endorsed, the tenant’s shares o f stock appur tenant to this lease, receiving a receipt therefor. In that event said stock shall be taken up and paid for by the cooperative at the face value thereof, less any arrears of rent and any other proper counterclaim, at any time or times after such deposit when the cooperative may in its discretion decide that its financial position is such that it is wise to do so. Should the tenant fail to make the deposit provided for in the above para graph, then the cooperative shall have the option at any time upon 10 days’ written notice to the tenant to cancel said stock and the same shall thereafter be void and o f no effect. The cooperative, however, shall remain liable to the tenant for a sum equivalent to the face value o f said stock, less any arrears o f rent and any other counterclaim, which sum shall be payable only at the time it would have been payable had the tenant made the deposit above provided for, and in no event before 3 years after such termination o f this lease. 22. At any time the tenant may make to the cooperative a written offer to surrender the lease and to resell all the tenant’s stock appurtenant thereto. Such offer shall be filed by the cooperative and a list o f the name o f the tenant and o f all other tenants who have made like offers shall be compiled by it in the order of receipt o f such offers, which list shall be known as the tenant’s priority list. All repurchases o f such appurtenant stock by the cooperative shall be made from such list in the order o f priority o f the names appearing thereon. The cooperative shall set aside out o f its surplus the sum o f $________ _ to to known as its revolving fund for the repurchase o f tenants’ stock, that part o f its surplus which o n ________________________ , was invested in stock o f the cooperative appurtenant to dwellings_________________________________________ having a par value o f $________ , being the part so to be set aside for the purpose. The cooperative agrees that, as and when the stock appurtenant to each such dwelling is sold, the moneys realized from such sale or sales shall constitute the aforesaid revolving fund and, immediately upon receipt o f each installment o f such moneys, shall be applied to the repurchase o f the stock o f tenants whose names appear on the aforesaid tenants’ priority list, all such repurchases to be made in the order in which such tenants’ names appear on said list (the stock o f the tenant whose name appears first on the list to be paid for in full, less any arrears o f rent and any other proper counterclaim, before any payments whatever are made for the stock o f any other tenant on said list). Each repurchase of such stock is to be accompanied by acceptance by the cooperative o f the tenant’s offer to surrender back the lease appurtenant to such stock, such acceptance to take effect and the tenant to be released from all further liability on said lease when and only when such repurchase is completed by payment in full as aforesaid for said stock. 56 ORGANIZATION OP HOUSING ASSOCIATIONS The revolving fund as thus reinvested in stock o f the cooperative shall still be deemed the revolving fund for the repurchase of tenant’s stock as aforesaid, and, as and when such stock is resold to new cooperative tenants, the moneys therefrom shall once again be applied to the repurchase o f stock o f tenants whose names appear at such time on said priority list in the order o f their priority; it being the intent o f the parties that tfiis fund shall be and remain a permanent revolving fund and that as each investment o f it in stock o f the cooperative is released it shall immediately become available fo r reinvestment so that there shall be at all times $________ , either in cash or in stock of the cooperative, available for the purpose; provided, however, that i f at any time and to the extent that the total surplus o f the cooperative falls below $_________ said revolving fund shall likewise fall to the same extent below $________ . At any time after the tenant shall have made written offer o f surrender of this lease and o f resale of the stock appurtenant thereto the tenant shall allow the cooperative’s agents to show the dwelling to persons wishing to hire the same. 23. Simultaneously with or prior to the execution hereof the tenant has executed a subscription f o r _____________ shares o f stock of the face value of ____________________________ in the cooperative, the terms o f which are more particularly described in said subscription agreement. I f the said stock is not fully paid for at the time o f the execution o f this lease, then the tenant shall pay all of the installments called for in said subscription agreement according to the terms hereof. 24. It is expressly understood and agreed that this lease is appurtenant to the shares of stock o f the cooperative purchased by the tenant and that the sale or transfer o f said stock by the tenant shall terminate any and all o f the tenant’s rights in and under this lease except as herein otherwise expressly provided. 25. I f this lease is made to more than one tenant, then such persons shall be deemed liable hereunder jointly and severally. One o f such persons may assign his interest in the lease and in the stock appurtenant thereto to the other co-owners o f this lease or to one o f them, but not otherwise, except as hereinbefore otherwise provided. Under no circumstances shall this lease, or the tenant’s stock appurtenant thereto, be held or owned by more than three persons. 26. It is understood that one or more dwellings may be let fo r a doctor’s or dentist’s office or to a cooperative operated on Rochdale principles, upon a co operative lease similar to this lease, except that the uses therein named may be such uses as the cooperative may agree upon with such tenant. Such tenant shall be a stockholder o f the cooperative, and shall in all other respects be upon the same basis and hold upon the same terms as though it were an individual tenant holding such dwelling or dwellings under a cooperative lease. 27. The tenant shall always, in good faith, endeavor to preserve and promote the cooperative principles and purposes which the cooperative was incorporated to accomplish. For the purposes o f this lease a cooperative operated on Rochdale principles shall be deemed to be a cooperative— (1) That conducts its business primarily for the mutual help and benefit o f its consumer stockholders or members without profit; (2) That limits the annual dividends upon its stock, i f a stock company, to 6 percent or less; (3) That either sells its goods or services substantially at cost, an d/or retains and uses its net earnings (exclusive o f dividends) and its savings in whole or in part for the needs* o f its business and/or in furtherance o f the general economic movement known as the Rochdale cooperative movement, and/or distributes such net earnings in whole or in part among its consumer stock holders or members upon the basis o f the amount o f business done by it with each such consumer stockholder or member; (4) That permits no profit to be taken by its stockholders or members, whether by sale of its stock and/or, if a housing corporation, by assignment or subletting of leaseholds, or otherwise; (5) That limits the voting power o f its stockholders or members (regardless o f the amount o f capital stock held by each) to one vote per individual, if such stockholder or member is an individual, or in its discretion, if such stockholders or members are corporations, ratably in proportion to the membership o f each such corporation. 57 APPENDIXES 28. The tenant shall quit and surrender the dwelling at the termination of this lease in as good order as it was at the beginning thereof, reasonable wear and damage by the elements excepted. I f the dwelling be not surrendered at the termination o f this lease, the tenant shall reimburse the cooperative for all damages which the cooperative may suffer by reason thereof, and shall indemnify the cooperative against any and all claims made by any succeeding tenant against the cooperative as a result o f the tenant’s delay in delivering possession o f the dwelling. 29. It is understood that, upon the death o f a tenant-member, his family or heirs may continue to occupy the dwelling, his rights thereto being transferred to them upon their fulfillment o f the usual conditions and obligations required o f a tenant-member. 30. All disputes and differences arising out o f this lease shall be settled by arbitration as follow s: Either party may, by written notice to the other, appoint an arbitrator. Thereupon, within 10 days after the giving o f such notice the other shall by written notice to the former appoint another arbitrator, and, in default o f such second appointment, the arbitrator first appointed shall be sole arbitrator. When any two arbitrators shall have been appointed as afore said, they shall if possible agree upon a third arbitrator and shall appoint him by notice in writing, signed by both o f them in triplicate, one o f which tripli cate notices shall be given to each party hereto; but if 10 days shall elapse after the appointment o f the second arbitrator, without notice o f the appoint ment o f a third arbitrator being given as aforesaid, then either party hereto or both may apply to t h e __________________court, county o f __________________ , to appoint a third arbitrator. Upon the appointment o f the third arbitrator (whichever way appointed as aforesaid) the three arbitrators shall meet and shall give opportunity to each party hereto to present his case and witnesses, if any, in the presence o f the other, and shall then make their award. The award o f the majority o f the arbitrators shall be binding upon the parties hereto, and judgment may be entered thereon in any court having jurisdiction. Such award shall include the fixing o f the expense o f the arbitration and assessment o f the same against either or both parties. In witness whereof, the parties hereto have set their respective hands and seals the day and year first above written. In presence o f : Tenant. _____________________________________ ____________________________________[L .S .] Tenant. ________________________________ C ooperative H o u s in g A s s o c ia t io n , I n c ., President. State o p ____________________________ County of___________________, ss: On th is _________day o f ________________________ 19____, before me personally c a m e _____________________________________ to me known and known to me to be the individual described in and who executed the foregoing instrument and he duly acknowledged to me that he executed the same. State o f __________________________ _ County of____________________ ss: On t h is ________ day o f ________________________ 19____, before me personally appeared____________________________________to me known, who, being by me duly sworn, did depose and say: That he resides i n _________________________ ______________ ; that he is t h e ____________________ o f _____________________Co operative Housing Association, Inc., the corporation described in and which executed the foregoing instrument; that he knows the seal o f said corporation; that the seal affixed thereto is such corporate seal; that it was so affixed by order of the board o f directors o f said corporation and that he signed his name thereto by like order. N ote: I f desired, the association m ight incorporate many o f the provisions o f the lease, given above, in a set of operating rules available for inspection by the members. This would shorten and sim plify the lease, which could then specify that such rules as were adopted by board or membership should be binding on the tenant. 58 ORGANIZATION OP HOUSING ASSOCIATIONS A ppen dix D.— Citations o f Laws Cooperative Laws Alabama.— Code, 1940, title 10, section 168. Arkansas.— Statutes, 1937, sections 2262 to 2278. California.— Statutes, 1939, chapter 808, as amended by Acts o f 1941, chapters 1216 and 1277. Colorado.—Michie’s Statutes, 1935, chapter 41, sections 210 to 214. Connecticut.— General Statutes, revision o f 1930, title 35, chapter 193, sections 3508 to 3517. District of Columbia.—Public Act No. 642 (76th Congress, 3d session), chapter 397. Florida.— Statutes, 1941, section 611.38, as amended by Acts o f 1941, page 136. Idaho,—Code, 1932, title 29, chapter 10, sections 29-1001 to 29-1005, as amended by Acts o f 1945, chapter 70. Illinois.— Smith-Hurd’s Revised Statutes, 1943, chapter 32, sections 305 to 331. Indiana.— (The cooperative law o f Indiana— Statutes, 1926, sections 5282 to 5288—was repealed in 1935.) Iowa.—Code, 1939, chapter 390.1, sections 8512-01 to 8512-60. Kansas.— General Statutes, 1935, sections 17-1501 to 17-1515, as amended by Acts of 1939, chapter 157, section 1. Kentucky.—Revised Statutes, 1944, sections 272.010 to 272.050 and 272.990. Maine.—Acts o f 1943, chapter 253. Massachusetts.— General Laws (Ter. E d.), 1932, chapter 157, sections 1 to 9. Michigan.—Compiled Laws (Mason’s 1940 supplement), sections 10135-98 to 10135-117, as amended by Acts o f 1941, No. 237, and Acts o f 1943, No. 211. Minnesota.— Statutes, 1941, sections 308.01 to 308.42, as amended by Acts o f 1943, chapters 304,317, 318, and 438, and Acts of 1945, pp. 320 and 878. Missouri.—Revised Statutes, 1939, sections 14406 to 14424. Montana.—Revised Codes, 1935, sections 6375 to 6396. Nebraska.—Revised Statutes, 1943, sections 21-1301 to 21-1306. Nevada.— Compiled Laws, 1929, sections 1575 to 1595, as amended by Acts o f 1941, p. 329. New Jersey.— Revised Statutes, 1937, sections 3 4 :17.1 to 3 4 :17.18. New Mexico.— Statutes, 1941, sections 54-1401 to 54-1445. New York.-^Cahill’s Consolidated Laws, 1930, as amended by supplement o f 19311935, chapter 10-a, articles 1 to 9, Acts of 1937, chapter 172, and Acts o f 1938, chapter 458. North Carolina.— General Statutes, 1943, sections 54-111 to 54-128. North Dakota.—Revised Code, 1943, sections 10-1501 to 10-1525, as amended by Acts of 1945, chapter 152. Ohio.—Baldwin’s Revision Throckmorton’s Code, 1940, sections 10185 and 10186. Oklahoma.— Statutes, 1941, title 18, sections 421 to 436. Oregon.— Compiled Laws, 1940, as amended by Acts o f 1941, chapter 219, and Acts o f 1943, chapter 52. Pennsylvania.— Purdon’s Statutes, 1936, title 14, chapter 1, sections 1 to 28, and chapter 4, sections 191 to 193. South Carolina.— Code, 1942, chapter 158, article 1, sections 8137 to 8149. South Dakota.— Code, 1939, chapter 11.11, as amended by Acts o f 1945, chapter 29. Tennessee.— Code, 1932, section 4146 (10). Vermont.—Public Laws, 1933, chapter 239, section 5791, as amended by Acts o f 1943, No. 142. Virginia.— Code, 1942, chapter 148, sections 3855 and 3855a. Washington.—Remington’s Revised Statutes, 1931, sections 3904 to 3923, as amended by Acts o f 1943, chapter 99. Wisconsin.— Statutes, 1943, sections 185.01 to 185.24. Wyoming.— (The Wyoming cooperative law, Wyoming Compiled Statutes, 1920, sections 5119-5134, was repealed in 1931.) General Housing Laws Arkansas.— Digest o f Statutes, 1937, sections 12243 to 12269. California.— General Laws, 1943, Act No. 3481. Delaware.—Revised Code, 1935, sections 5424 to 5452. Florida.—Florida Statutes, 1941, sections 424.01 to 424.22. APPENDIXES 59 Illinois.—Revised Statutes, 1943, chapter 32, sections 504 to 549. Kansas.— General Statutes, 1935, chapter 17, article 23. Massachusetts.—Acts o f 1933, chapter 364, as amended by Acts o f 1935, chapter 449. New Jersey.—Revised Statutes, 1937, title 55, chapter 15. New York.—Acts o f 1939, chapter 808, as amended by Acts o f 1940, chapters 148, 393, and 444. Ohio.—Baldwin’s Revision, Throckmorton’s Code, 1940, chapter 14A. Pennsylvania.—Acts o f 1937, No. 181, page 704. South Carolina.— Code, 1942, sections 5271-4 to 5271-30. Texas.— Vernon’s Statutes, 1936, articles 1524b to 1524k and 1528a. Appendix E.— Cooperative Leagues and Wholesale Associations California: Associated Cooperatives 817 Lydia Street Oakland 7 District o f Columbia: Potomac Cooperative Federation 2621 Virginia Ave., NW. Washington 7 Illinois: Central States Cooperatives 1535 S. Peoria Street Chicago 8 National Cooperatives 343 S. Dearborn Street Chicago 4 Cooperative League o f the U.S.A. 343 S. Dearborn Street Chicago 4 Indiana: Indiana Farm Bureau Cooperative Association 47 S. Pennsylvania Street Indianapolis 9 Massachusetts: New England Cooperative Federation 53 Farnsworth Street South Boston Michigan: Farm Bureau Service 221 N. Cedar Street Lansing 4 Minnesota: Midland Cooperative Wholesale 739 Johnson St., NE. Minneapolis 13 Minnesota Farm Bureau Service Co. 101 E. Fairfield Street St. Paul 1 Farmers Union Central Exchange Box G St. Paul 1 Missouri: Consumers Cooperative Association 318 E. Tenth Street Kansas City 13 Nebraska: Farmers Union State Exchange 39th & Leavenworth Streets Omaha 5 New Jersey: Cooperative Federation o f New Jersey 843 Broad Street Newark New Y ork : Cooperative League o f the U.S.A. 167 W. 12 Street New York 11 Eastern Cooperative League 44 W. 143 Street New York 30 Eastern Cooperative Wholesale 44 W. 143 Street New York 30 Ohio: Farm Bureau Cooperative Association 246 N. High Street Columbus 16 Oregon: Oregon Grange Wholesale 1135 SE. Salmon Street Portland Pennsylvania: Pennsylvania Farm Bureau Cooperative Association 3607 Derry Street Harrisburg Philadelphia Area Cooperative Federation 1429 Spruce Street Philadelphia 2 T exas: Consumers Cooperatives Associated 1517 E. Third Street Amarillo Utah: Utah Cooperative Association 155 Pierpont Avenue Salt Lake City Vermont: Vermont Cooperative Council Montpelier 60 ORGANIZATION OP HOUSING ASSOCIATIONS W isconsin: Wisconsin Cooperative Farm Supply Co. 744 Williamson Street Madison Washington: Grange Cooperative Wholesale 3104 Western Avenue Seattle 1 Central Cooperative Wholesale 1901 Winter Street Superior Pacific Supply Cooperative P. O. Box 1004 Walla Walla Appendix F.— Where the Housing Dollar Goes Tables 1 and 2, which follow, are taken from National Housing Bulletin No. 2 : Housing Costs, Where the Housing Dollar Goes, published by the National Hous ing Agency. These tables show the cost o f various items that enter into house construction as percentages o f the total of a dwelling, and the effect that a 20-percent reduction in costs would have upon the purchaser’s monthly payments on a $5,000 dwelling. T able . 1 — Distribution of Housing Costs, by Item Percen t o f total cost o f house and land represented by— Item Cost o f m aterials at sito M qormrv lUaoUii* Jr C oncrete and m ortar------------------------------------Plaster, lath, and w allboard------------------------Insulation____________r R oofin g----------------------------------------------------------Flooding ........ .................. M illw ork ....... P a in t--------------------------------------------------------------F inish ha rd w are__ Electrical M isepna'nfirnis Cost o f construction labor at site_____ _ _ _ C ontractor’ s and subcontractors’ overhead and Cost o f m anu facture Cost o f distri bution 20.90 4.19 2.17 1.70 1.31 14.80 4.64 .73 .11 .62 1.35 2 .8 8 .8 8 .29 3.63 .89 .39 .49 .8 6 1.54 .06 .32 1 .0 2 3.10 .34 .29 .90 .30 .40 .30 Cost o f trans p orta tion 3.90 1.42 .30 .33 .46 .03 .1 0 .24 .38 .04 .03 .35 .09 .05 .08 Com bined p rofits 6 .1 0 1.60 .25 .44 .96 .04 .2 1 .34 1 .0 0 .15 .1 0 .60 .14 .14 .13 Deliv ered p rice 45.70 11.85 3.45 3.33 4.27 .24 1.25 2.95 7.36 1.41 .71 5.48 1.42 .98 1 .0 0 20.50 12.30 Total cost o f house _ _ V alue o f unim proved land (in clu din g p rofit on land) _ Cost o f land im provem ents (in clu din g p rofit) T otal capital cost. _ 87.50 7.00 5.50 1 0 0 .0 0 61 APPENDIXES T able 2.— Monthly Cost to Purchaser and Effect on Monthly Cost o f 20-Percent Reduction in Various Items of Cost ..Assumes total cost (house and lan d) o f $5,000, down paym ent (90-percent m o rtg a g e ) o f $500, and $ 1 0 0 in closing fees and com m issions] 1 2 R eduction in m onthly cost assum ing 2 0 -p ercen t reduction in norm al cost N orm al m onthly cost Item o f cost F irst 25 years Interest (5 p e rc e n t)______ ____________ A m ortiza tion (25 y e a r s )______________ L oss o f interest on cash paym ents ( 3 p*»TV».AT»t) _ . . . T axes (2l/ i p e rc e n t)__________________ H azard insurance ( 0 .2 p e rc e n t )______ M aintenance ($ 1 0 0 p er y e a r )_________ Capital cost- Total ------------ N ext 15 years A verage fo r 40 years F irst 25 years A vera ge N ext fo r 4-3 15 years years Percent Percent 5.4 $11.31 15.00 1.50 10.42 .83 8.33 $1.50 10.42 .83 8.33 m u z z 47.39 21.08 $37.52 Percent 4.3 — 6.5 0 0 1 4.5 — 4.4 9.9 5.6 3~5 2 16.4 7~9 2 11.9 AA — — 2 15.4 — 1 Savings per month over 31% years (term of loan) under 20-percent reduction. 2 R epresents sa vin g entailed b y reduction o f total cost o f house an d land fr o m $5,000 to $4,000. 63 Index A dm inistration and m a n a gem en t_____ ______________ _------------------------ ____ TT_________ 82-46 A d visory service, value and uses o f, b y housing g r o u p s ____________________ 5 , 11, 12, 16, 32, 40 A lterations by m e m b e r ____________________________________________________________________ 3 , 51, 52 A m algam ated cooperative a p a rtm e n ts_______________ :____________________________________ 6 , 28, 34 A m o r t iz a tio n --------------------------------------------------------------------------------- 1 1 , 14, 15, 23, 24, 28, 31, 38, 61 A rbitration o f disputes between member and a ss o cia tio n ________________________________________ 57 A r c h it e c t -------------------------------------------------------------------------------------------------------------------------------------- 6 , 18 A rchitectural con sid era tion s______________________________________________________________ 6 , 16, 17 A ssistance (financial, e t c .), probable sources o f o u ts id e _________________________________ 13, 23, 40 A ttorney, steps in which services are a d v isa b le __________________________________________ 11, 20, 21 mortgage______________________________________ *____________ 23, 24 Bonds of association______________________________________________ 26, 28, 43 Building and loan associations as source of financing_________________________ ____ 23 Building design____ ___________________________________________________ 17 Building materials______________________________________________6 , 17, 40, 60 Blanket Bylaws, provisions o f ---------------------- -------------------------------------------------------------- 21, 22, 31, 42-48 Capital (see also Financing)------------------------------------ 3, 4, 25, 26, 28, 35, 42-44, 48, 49 Deposit account, members’ ----- —---------------------------------------------------- 31f 35 f 35 Members’ share capital, returns on________ ____ _______________ 3 , 35 , 38 , 39 , 44 Redemption of members* shares----------------- 3, 8, 27, 29, 30, 31, 37, 42, 4 3 , 49 , 5 5 , 56 Revolving fund, uses o f_________________________________________ 27, 55, 56 Shares, transfer o f_______________________________________ 4, 22, 31, 42, 43 Carrying costs (see Maintenance, cost of, and Rental charges). Charges________________________________ ____ ________ ----------- 7, 10, 22, 28-30, 50, 52, 61 Commercial activities, housing association, in relation to ---------------------------------------------------- 17, 34 Committees for various purposes__________________________ --------------------------- 1 1 , 12, 32, 33, 46, 48 Community facilities, and w elfare________________________ ----------- 8 , 9, 12, 13, 16, 17, 34, 38, 39 Construction ______________ ______ _________________________ ---------------------------------------------6 , 7, 17-19 Construction lo a n s--------------------------------------------------------------- ----------------------------------------------------------- 27 Contract, building, factors to be considered i n ____________ --------------------------------- ------------------ 18, 19 Contractor, considerations relating t o _____________________ ------------------------------------------------ 6 , 18, 19 Cooperative activities in housing associations___________ ----- 8 , 9, 19, 20, 32, 33, 34, 38, 39, 56 Cooperative la w s ------------------------------------------------------------------ --------------- 5, 20, 21, 37, 39, 45, 46, 58 Cooperative League of U .S.A .__________ - ___________________ ----------------------------------------------------------- 5 Cooperative principles and practices in housing--------------- ------------------- 2-5, 27, 30, 34, 85, 53, 56 Costconsiderations: --------------------------------6, 7, 17-19, 26, 60 Development_____ ______________________________________ ---------------------------------------- 12, 13, 25, 26 Distribution of cost item s_____________________________ ----------------------------------------------------- 60, 61 Down payment---------------------------------------------------------------Economies possible________________________ : ; : : : : : : : ; ; : ; T ; T - 8 7 i 7 i i i ; T 4 T T 9 : 30 Fixed charges----------------------------------------------------------------- -----------------------------------------------------28, 61 ________________________________ 14-16, 24 Interior decoration------------------------------------------------------- ----------------------------------------------- 29, 30, 51 Labor —------------------------------------------------ --------------------------------------------- 7, 29, 60 ----------------------------------- 12-14, 25, 26, 60 6i Maintenance____________________________________________ -------------------------------------------------- 6, 15, 29 Profit, speculative---------------------------------------------------------- ______ 3, 4, 6, 8, 9, 18, 19, 27, 36, 39 6, 11, 12, 14, 19 Property valu es------------------------------------------------------------- _____________________ R epairs---------------------------------------------------------------------------- _____________________ 11, 29, 30, 50, 51 Shopping facilities------------------------------------------ --------------- ______________________________ 16, 17, 34 U tilitie s----------- '----------------- 7 ------------------------------------------- _______________ 6, 8, 12, 13, 17, 26, 52 Credit Union National Association--------------- ----------------------- ______________________________________ 28 33 Credit unions in cooperative housing associations-------------- _______________________ 6 Crestwood, Wisconsin housing project-------------------------------“ Cushions” (see Reserves). _______________________ Death of member, provisions regarding----------------------------------------_________ 28, 44, 54, 57 D e b e n tu res---------------------------------------- ---------------------- 7 ---------------------------------------------------------- 25, 26, 28 Debts o f members to association, procedure r e g a r d in g ------------------------- -------------------------------7, 43, 54 D efault by m ember, procedure in case o f -----------------------------------------------______________ 23, 49, 52-54 D eposit account, ten an ts*------------------------ ------- #----------------------------------------__________________ 31, 35, 36 D irectors o f housing association, election, duties, etc., o f ---------------------_______ 3, 32, 42, 45-47, 50 Disputes between m em ber and association, arbitration o f --------------------Dissolution o f association, procedure in case o f ------------------------------------- : : : : : : : : : : : : : x t 8,~397 48 Dividend on s t o c k ------------------------------------------------------------------------------------__________________________ 7 D ow n p a y m e n ts--------------------------- ---------— --------------------------------------------- __________________________ 15 D w ellings, size o f, in relation to size o f fa m i l y ---------------------------------------______________ 9, 10, 17, 24 D w ellings, types o f -------- ,------------------------------------------------------ --------------------______________________ 11, 17 D evelopm ent c o s t s ------------------------------------------------------------------------------------- _________ 12, 13, 25, 26 E ast R iver Cooperative A p a rtm e n ts---------------------- ---------------------------------------- ------------------- — — 13, 14 Eastern Cooperative L e a g u e -------------------------- --------------------------------------------------------------------------- 40, 59 Econom ies, possible, through cooperative m e th o d ------------------------------------- 3, 6 - 8 , 17-19, 24, 29, 30 Educational w o r k -----------------------------------------------------------------------------------------------------------------33, 38, 44 64 INDEX Employment, reasonable expectation of, necessary------------------------------------------------------------- --- 9 , 10 Existing buildings, purchase o f __________________________________________________________ 1 1 , 12, 25 Experts, use of, in housing------------------------------------------------------------------------------- 5, 11, 1 2 , 16, 32, 40 Expulsion of undesirable m em bers__________________________________________________ 28, 42, 46, 54 Federal Housing Administration ___________________________________________________________ 23, 24 Federal Public Housing Authority, procedures and regulations_____________ ________________ 14-16 Federations, housing------------------------------------------------------------------------------------------------------------40, 41, 44 Financing, considerations regarding (see also Capital, and R eserves)--------------- 13, 22-27, 40, 42 Fixed charges----------------------------------------------------------------------------------------------------------------------------- 28, 61 G overnm ent agencies and housing 7, 14-16, 23, 24 Housing law, national--------------- ------------------------------------------------------------------------------------ 8 , 15, 16, 23 Housing laws, provisions o f _____________________ 8 , 14, 15, 20, 23, 28, 34, 35, 37, 39, 48, 58, 59 Income, members’ , considerations regarding ____________________________________ 8 , 10, 15, 17, 20 Incorporation of association-------------------------- _________________________________________ 8 , 20. 21, 25 Information, cooperative sources o f --------------- _____________________________________________________59 Insolvency, members’ , procedure in case of - _____________________________________________________54 Insurance, Government, on housing loans __ _________________________________________ 7, 23, 24, 28 Insurance, use of, in cooperative housing — ______________ ________________ 7, 8 , 23, 28-30, 47, 51 Interest and interest rates------------------------------ ______________________ 3, 4, 14-16, 24, 35, 38, 39, 61 Interior decoration------------------------------------------ -------------------------------------------------------------------- 29, 30, 61 7, 60 L abor, cost o f . Labor, members’, as contribution on co st--------------------------------------------------------------------------------- 7, 29 Land, considerations regarding purchase o f ---------------------------------------------------------------------12, 13, 60 Lease, members’, procedure regarding-------------------------------------------------------- 3, 4, 14, 22, 28, 49-57 Legal provisions______ ___ _____ ______ _________ . . . . . . 5, 8 , 14, 15, 20, 28, 34, 35, 37, 39, 42—46 Limited-dividend la w s------------------------------------------------------------------------------------------------------------5, 20, 39 Loan capital---------------------------------------------------------------------------------------------------------------------- --------43, 44 Loan, period of, extension of, under National Housing A c t --------------------------------------------------- 8 , 23 Liability of member----------------------------------------------------------------------------------------------------------------8 , 21, 25 Location of project (see Site). Losses, probability o f --------------------------------------------------------------------------------------------------------------7, 9, 39 Maintenance costs, considerations regarding------------------------------------------------------------— 6 , 7, 29, 61 Manager of association, requirements, and duties o f ---------------------------------------------------------------------32 M anagem ent______________ - __________________________________________________________ 32—36, 47, 50 Materials, building---------------------------------------------------------------------------------------------------------- 6 , 17, 40, 60 Meetings, membership----------------------------------------------------------------------------------------------- ----------------45, 46 Members, considerations affecting: Alterations by member to dwelling--------------------------------------------------------------------------------3 , 51, 52 Costs to members (see also Econom ies)------------------------------------------------- - 7, 10, 24, 26, 28, 29 Death, provisions regarding--------------------------------------------------------------------------------- 28, 44, 54, 57 Debts to association, procedure in case o f --------------------------------------------------------------------- 7 , 4 3 , 5 4 Default, procedure in case o f -------------------------------------------------------------------------- 23, 49, 52, 53, 54 Deposit account------------------------------------------------------------------------------------------------------------ 31, 35, 36 Expulsion of undesirable---------------------------------------------------------------------------------------- 28, 42, 46, 54 Income group to be served--------------------------------------------------------------------------------- 8 , 10, 15, 17, 20 Insolvency, procedure in case o f ----------------------------------------------------------------------------------------------- 54 L e a s e ___________________________________________________________________________ 3, 14, 28, 49-57 Liability of members------------------------------------------------------------------------------------------------------ 8 , 2 1 , 25 Loans by association---------------------------------------------------------------------------------------- 26, 31, 34, 40, 41 Meetings of mem bers---------------------------------------------------------------------------------------------------------- 45, 46 Ownership, evidence o f ---------------------------------------------------------------------------------------------- 1 , 3, 27, 50 Rights, duties, and responsibilities----------------------------------------------- 8 , 27, 28, 30, 31, 42, 50-57 Safeguards----------------------------------------------------------------------------------------------------------------- 5, 8 , 29, 36 Share capital, returns o n ----------------------------------------------------------------------------------- 3, 85, 38, 39, 44 Share subscriptions-------------------------------------------------------------------------------------------- 24-26, 42, 48, 49 Transfer of shares---------------------------------------------------------------------------------------------- 4, 22, 31, 42, 43 Withdrawals, procedures in case o f ------------------------------------------ 3, 8 , 27, 29-31, 42, 43, 54-56 Membership, qualification-----------------------------------------------------------------------------------------------------9, 10, 42 Merger with another association------------------------------------------------------------------------------------------------------ 48 Mortgages and mortgage considerations------------------------------------------------------------------------------1 1 , 22-25 Amortization--------------------------------------------------------------------------------- 14, 15, 23, 24, 28, 31, 38, 61 Blanket m ortgage------------------------------------------------------------------------------------------------------------------ 23, 24 Prepayment of m ortgage---------------------------------------------------------------------------- 23-26, 29, 31, 35-38 Release of individual dwellings fr o m ------------------------------------------------------------------------------8 , 9, 24 Second m ortgages---------------------------------------------------------------------------------------------------------- 22-24, 26 Term o f -----------------------------------------------------------------------------------------------------------------------------------14, 15 ___ 5, 10, 14-16, 21 Mutual savings banks as scoirces of financing . Neutrality, political, religious, etc., of association--------------------------------------------------------------- 4, 5, 10 New members_________________________________________________________________________ 26, 31, 33, 45 Nonmembers, considerations regarding------------------------------------------------------------------------------------- 43-45 Officers o f a s s o cia tio n _____________________________________________________________________ 32, 47, 48 Option to repurchase_______________________________________ *4, 8 , 22, *27, 29-31, 42, 43, 49, 55, 56 Order of business at membership meetings--------------------------------------------------------------------------------45, 46 Ownership, legal, of dw elling-------------------------------------------------------------------------------------------- 3, 4, 8 , 27 Ownership, member’s evidence o f ----------------------------------------------------------------------------------- 1, 3, 27, 50 65 INDEX Page -------------------------------- 38, 44, 45 ---------------------- 5, 6 , 12, 16, 17 — -------------------------------------------17 Patronage refunds__________________________________ Planning considerations___________________________ Plans, building_____________________________________ Policies o f association: M anagem ent___________________________________ Operation------------------------------------------------------------Rental of dwellings-------------------------------------------Subletting----------------------------------------------------------Vacancies------------------------------------------------------------Prefabrication of housing elements------------------------Preferred s to c k --------------------------------------------------------Prepayment of m ortgage----------------------------------------President, duties o f --------------------------------------------------Price on property, considerations regarding----------Profit, speculative, in cooperative housing-----------Project, possible types o f ------------------- --------------------Property values, considerations regarding------------Proxies (see V oting), -------------------------- 32-36, 47, 50 --------------------------------------- 33-36 ---------------------------------------------- 30 -------------------------------------- 31, 34 — 5, 8 , 27, 33, 34, 45, 53, 54 -----------------------------------------------------26, 28 ----------------------------- 23-26, 29, 31, 35-38 ----------------------------------------------------------- 47 ---------------------------------------- 1 1 , 12, 14, 19 ----------- 3, 4, 6 , 8 , 9, 18, 19, 27, 36, 39 ----------------------------------------------- 11-16, 2 0 ------------------------------------6 , 11, 12, 14, 19 9, 10, 42 ______ 45 Qualifications, desirable for members----------------------Quorum____ — - ------------------------------------------------------------ Redemption of members' shares----------------------------------- 3, 8 , 27, 29, 30, 31, 37, 42, 43, 49, 55, 56 Registration of association's securities-------------------------------------------------------------------------------------------13 Release of individual dwellings from blanket mortgage as paid f o r -------------------------------------8 , 9, 24 Rental charges______________________________________________________________ 7, 10, 28-30, 50, 52, 61 Rental of cooperative dwellings------------------------------------------------------------------------------------------------- 31, 34 R ep airs___________________________________________________________________________ 11, 29, 30, 50, 51 Reserves_______________ 1 _______________________________________ 8 , 14, 23-25, 28, 31, 36, 37, 44, 48 Revolving fu n d ----------------------------------------------------------------------------------------------------------------------------38, 44 Safeguards for members and associations________________ ---------------------------------------------5, 8 , 29, 36 23 Savings and loan associations as source of financing------ _____ ______ _______ Savings, opportunities f o r ------------------------------------------------- i:::::::::::::"i;T-8ri7-i9T~24r”29i 30 Second m ortgages_________________________________________ ------------------------------------------------- 22-24, 26 Secretary, duties o f _______________________________________ -------------------------------------------------------------47 Self-help activities open to members_____________________ -------------------------------------------------------- 7, 29 Share capital (see also C a p ita l)__________________________ ________ 3, 25, 26, 28, 35, 42-44, 48, 49 3, 8 , 27, 29-31, 37, 42, 43, 49, 55, 56 Shares, members', repurchase o f --------------------------------------Share subscriptions of members---------------------------------------- ------------------------------------ 24-26, 42, 48, 49 Shopping facilities-------------------------------------------------------------- _______________________________ 16, 17, 34 Site, considerations regarding choice o f __________________ _________________________________ 6 , 11-16 Speculation in cooperative housing______________________ ________ 3, 4, 6 , 8 , 9, 18, 19, 27, 36, 39 State requirements on housing________________________5, 14, 20, 28, 34, 35, 37, 39, 43-46, 48, 58 Subletting of dwellings------------------------------------------------------- _____________ 5, 8 , 27, 33, 34, 45, 53, 54 Surplus savings------------------------------------------------------------------- ___________________ 3, 4, 9, 37-39, 41, 45 Taxes, considerations regarding_____________________________________ 11-14, 2 0 , 26, 28, 35-38, 61 Term of mortgage------------------------------------------------------------------------------------------------------------------------ 14, 15 Title, legal, to dwelling, procedure regarding___________________________________ ____________3, 4, 27 Treasurer, duties o f _____________________________________________________________________________ 47, 48 Unemployment, effects o f __________________________________________________________________ 9, 10, 36 Urban redevelopment___________________________________________________________________________13, 14 Utilities, considerations regarding_________________________________________ 6 , 8 , 12, 13, 17, 26, 52 Vacancies, procedure regarding________________________________________________________________ 5, 7 Vice president, duties o f -------------------------------------------------------------------------------------------------------------------47 V otin g________________________________________________________________________ 3, 4, 5, 30, 46, 48, 56 Withdrawals o f members, procedure---------------------------------------- 3, 8, 27, 29, 31, 42, 43, 54, 55, 56 Zoning, requirements relating to — — --------------------------------------------------------------------------------------------- 17 & U .S . GOVERNMENT PRINTING OFFICE: 1 * 4 # ---684613