Condominiums and cooperatives are both a form of common-interest ownership of property (Note: some state laws or "statutes" refer to condominiums and cooperatives jointly as common-interest communities.)
By far the most popular form of common ownership is the condominium. A condominium is characterized by separate ownership of identified portions of the subject property (such as individual apartments in a multi-unit building) and undivided or joint ownership of the remainder (the common areas of that apartment building).
The most common form of condominium is the residential, multi-unit high-rise apartment style building, but the condominium concept is not limited to this form. Condominiums exist in commercial real estate settings, such as office condominiums, and in other residential forms, such as condominium townhouses. A condominium is a form of ownership, not a type of building. Existing apartment buildings can be turned or "converted" into condominiums, and condominiums can be changed back into traditional apartment buildings.
Condominium units can be bought and sold individually, each transferred with a separate deed and subject to a separate mortgage, as would be the case if each were a separate single-family home. At the same time, each condominium owner retains an undivided interest in the common areas, such as hallways, exterior grounds, landscaping, and the like.
The condominium is generally created by a condominium declaration, which includes, among other provisions, descriptions of the units and common areas, and any material restrictions on the occupancy or use of the units. The condominium is managed by the Condominium Association, which is composed of the owners of the individual units and which makes and enforces rules (much like the landlord of a traditional apartment building), sets and collects the dues and maintenance fees necessary to maintain the structure, and manages the common areas.
Additionally, to some extent the rights and duties associated with a common-interest ownership will be governed by the state's condominium statute. All fifty states have passed statutes governing condominiums, with some passing broader statutes governing common-interest communities generally.
Understanding the restrictions and conditions contained in the condominium's declaration, the rules and regulations established by the association, and the powers of the association is absolutely essential for any prospective condominium buyer. After all, in any common-interest community, much of what an owner can do by way of using and maintaining the property and its facilities, as well as what he or she must do in terms of paying fees and assessments, is governed by a vote of the owner's neighbors. To a much greater extent than is the case with a traditional single-owner structure, with a condominium "no one is an island." Consulting with an attorney experienced in condominium and cooperative law will go a long way towards making sure a prospective purchaser knows what he or she is buying into, and in explaining the owner's rights if and when a dispute arises.
A cooperative is also a form of shared or common-interest ownership, although it is much less common than the condominium. Real estate cooperatives are formed on the same theory and general lines as other cooperative organizations, such as banking or credit cooperatives, which are owned by and operated for the benefit of those using the organization's services. The major difference between a condominium and a cooperative is that in a cooperative, each owner does not have outright ownership of any specific, identifiable unit. Rather, title to the entire property is held by the cooperative (usually a corporation), and the residents own stock in the corporation. As shareholders, the residents elect directors to manage the building, and the corporation in turn provides each resident with a long-term renewable lease to his or her specific apartment unit.