Arrangement Choice Services

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Coliving Counsel can help you choose an arrangement for holding your property. An arrangement may involve ownership, rental, or a mix of both. Arrangements include:

  • master leases, leases, and subleases;

  • tenancies in common (“TIC”), including both space assignment tenancy in common (“SACO TIC”) and TICs without space assignment features;

  • limited liability companies;

  • housing cooperatives, including stock cooperatives, statutory limited equity housing cooperatives (“LEHCs”), non-statutory LEHCs, and workforce housing cooperative trusts;

  • condominiums, including limited equity condo projects;

  • mutual benefit corporations, including resident-owned nonprofits and resident-operated nonprofits; and

  • equity sharing option contracts.

Client Story: Housing Co-ops

An aerial view of a neighborhood with closely packed houses with colorful exteriors, tiled roofs, and small front yards, surrounded by some greenery and palm trees.
An aerial view of a neighborhood with closely packed houses with colorful exteriors, tiled roofs, and small front yards, surrounded by some greenery and palm trees.

  • Question: We’re building a 20-unit limited equity housing co-op project. We’d like this it to anchor a city-wide housing co-op project. That project will grow through acquisition. Resident control over resident selection is critical. How should we structure this multi-site cooperative?

  • Answer: Let’s review the legal constraints giving rise to the main housing co-op forms in California. These are resident-operated nonprofits (“RONs), limited equity housing co-ops (“LEHCs”), and limited equity condo projects (“LECs”).

    With that shared understanding, let’s look at your city’s condo conversion ordinance. It bans conversions to LEHCs and LECs. So, your existing LEHC project can’t anchor the larger project.

    Let’s scale up and consider the emergent challenges for a large RON. The main issue is the $20 million welfare tax exemption cap. You can take government financing and avoid it. Yet, then you must use lottery selection and sacrifice resident control.

    Let’s review (a) a multi-entity RON operating under the $20 million cap, (b) a RON with creative financing offsetting the limited welfare tax exemption, and (c) lobbying your city council to allow LEHC conversions like other cities.

A row of old stone houses with steep, tiled roofs and brick chimneys, with a distant view of green fields and trees under a cloudy sky.

Client Story: 3 Couples, 1 Property

  • Question: We’re three couples buying a property. We’re open to a triplex or buying a duplex and adding an ADU. How do we get from here to there? What’s the best co-ownership structure for us?

  • Answer: A group mortgage space assignment tenancy in common is your most viable option for buying. You’ll need to consider whether you can income-qualify for a conforming mortgage with only four buyers on the note and the rest on title. If not, you’ll need a portfolio loan with five to six buyers on the note.

    You could convert that TIC into an LLC. That’s viable if you get a conforming loan that allows this without triggering a due-on-sale clause. It also depends on the relevant city’s transfer tax rules.

    You could later convert to a condo. Yet, adding an ADU would block the condo conversion in some cities which don’t allow ADU condo sales. Also, some city condo conversion ordinances will make this infeasible.

    You could later convert to a TIC with fractional loans. This would de-risk the financial situation and ease exit.

    Let’s review the pros and cons of each of these ownership structures with respect to ease of entry and exit, control over resident selection, traditional homeownership benefits, and loan availability and terms.

Frequently Asked Questions

  • This is a real chicken-and-egg situation for clients who don’t already own a property. Do you design a structure and then search for a property that will fit it? Or do you search for a property and then design a structure to fit it? 

    I can help a client do either of those things, but I generally help clients do a bit of both. Designing a structure and then searching for a property may unduly restrict your search. Searching for a property and then designing a structure to fit it unduly compresses the timeline to create that structure. It also risks getting stuck with a less-than-desirable structure. 

    My in-between solution helps clients narrow the range of possible property options and then explains the legal structures suitable to those various properties and to your stated goals. That way, whatever property you find that fits your stated criteria, you’ll have a legal structure ready to go for it. You’ll also know that certain cities or property configurations just don’t work for how you want your legal structure to work. 

    The variables I suggest clients limit, if possible, are:

    • desired cities (city-specific regulations influence some legal structures);

    • number of people whose financials are going to support the loan and who are going to be on the mortgage promissory note (if you need more than 4 people’s incomes to support a loan, it’s more complicated);

    • whether you’ll accept a property with an ADU or not, or whether you want to add an ADU (this may influence the possibility of fractional TIC financing and will influence later condo conversion on a city-by-city basis);

    • number of non-titleholders if you’re going to buy a single family home and rent rooms (more than 4 room rentals can take you out of “family” classification and into rooming house territory in some cases);

    • whether you’re looking at some properties where you’ll need a loan below and some where you’ll need a loan above Fannie Mae’s loan limits (this influences ability to transfer mortgage to an LLC), and

    • number of units if you’re open to 4 units (going from 4 to 5 changes loan options and legal structures entirely).

    You shouldn’t remove a variable unless you’re confident about eliminating it. I can handle a significant number of variables. It just makes the memo more complicated. It’s better for it to be comprehensive and complicated than simple and unhelpful, in my opinion. 

  • I typically provide an Arrangement Choice memo based on the facts about your group. This serves as a shared basis for your group to make decisions based upon.

    If you are open to properties with an accessory dwelling unit (“ADU”) or you want to add an ADU later, your Arrangement Choice memo will need a Development Support component. The component will explain the benefits and drawbacks of adding an ADU versus adding a dwelling unit. It implicates arrangement choice.

    If you are open to adding extra dwellings units to a property or subdividing a property, your Arrangement Choice memo will need a Development Support component. That development support component will review the relevant state and local laws allowing these changes to a property. It will explain how these changes influence allowable arrangements.

    If you are seeking to create a legal structure that needs zoning or planning law verification to proceed, your Arrangement Choice memo will need a Development Support component. For example, master leasing a 10-bedroom single family home and then subleasing individual rooms implicates functional family law and group housing regulations. Similarly, creating a mutual benefit corporation with 501(c)(7) tax status to own a large single family home may trigger group housing regulation.

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