Legal Structures in Cohousing

Posted by Anthony Kidd | 12 March 2011

A company is an artificial legal person. In law the company is the same as a natural person. It can own property, it can sue and be sued and can even commit criminal offences. The company is separate from its members but is made up of its members. It's like the difference between the cells in your body and the body as a whole. Each cell operates independently, it's born, performs its function and then dies independently of the body it is a part of. The company's legal status is defined by legislation which, in Australia, is the Corporations Act 2001. Section 124(1) of that act provides that a "company has the legal capacity and powers of an individual". 

A cohousing community is similar to a company in that it is made up of individuals but it is an entity in itself. In cohousing the community is usually represented by the "owners corporation" which is similar to a company. 

In Australia the word "company" is reserved for Corporations Act companies but there are other similar entities. The owner’s corporation is similar but (in Victoria) is incorporated under the Subdivision Act 1988 (Vic) (See section 27). An incorporated association is also similar but is created under the Associations Incorporation Act 1981 (Vic). These entities may also be referred to as corporations or bodies corporate. All of these terms have precise legal meanings and there are differences between them but they are often used interchangeably without regard to their legal meanings. Corporations Act companies usually have the suffix Limited, Ltd, Proprietary Limited or Pty Ltd in their names. Incorporated Associations have the suffix Incorporated or Inc. 

When developing cohousing there are 3 different companies: 

  • an incorporated association;
  • a corporations law company; and
  • an owners corporation.

The incorporated association is formed shortly after the group forms. Its purpose is to collect small amounts of money from members which can be used for feasibility studies, site search activities such as paying property consultants, employing architects to do preliminary drawing and to engage group process consultants. The association will usually be wound up after the project is finished.

The corporations law company is used to buy the land, borrow money to develop the land, employ the architect and other professionals and do all the other things necessary to build. It is also would up at the end of the project. The loan to develop the land is known as a development or construction loan. 

The owners corporation is formed when the building is complete and the titles to the individual dwellings are issued. It will remain in existence for as long as the building remains. It is only when this entity is created that members will be able to mortgage their dwelling to obtain a housing loan from a bank.