Under Iowa law, two or more corporations may form multiple housing cooperative

by Gary Taylor

City of Iowa City v. Iowa City Board of Review
Iowa Supreme Court, May 15, 2015

Iowa Code 499A.1(1) provides in relevant part:

Any two or more persons of full age, a majority of whom are citizens of the state, may organize themselves for the following or similar purposes: Ownership of residential, business property on a cooperative basis.  A corporation is a person within the meaning of this chapter.

In May 2012 the Iowa City Board of Review sent notices to 18 properties indicating the board changed the classification for those properties from commercial to residential for property tax purposes.  They were reclassified because they had been recently organized into multiple housing cooperatives.  The City of Iowa City filed a notice of appeal with the district court, objecting to the Board’s reclassification.  All parties agreed that two Iowa corporations organized each of the multiple housing cooperatives for the purpose of owning residential property in a cooperative. The City argued that the Board’s reclassification was improperly because (1) two natural persons, not two corporations, must organize multiple housing cooperatives under the Iowa Code, and that (2) the Iowa Code requires a one-apartment-unit-per-member ownership ratio for a multiple housing cooperative to be properly organized.  The district court granted summary judgment in favor of the Board and the City appealed.

Need for natural persons to organize cooperatives.  In Krupp v. Jasper County Board of Review the Iowa Supreme Court held that the proper test for determining if a property could be classified as residential is whether the multiple housing cooperative was properly organized, not the actual use of the property.  After examining the language of Section 499A.1(1) the Iowa Supreme Court concluded that a natural person need not be one of the organizers of a multiple housing cooperative.  The phrases “persons of full age, a majority of whom are citizens of the state” and “a corporation is a person within the meaning of this chapter” are not inconsistent with each other.  The Court said that “the intent of the General Assembly … was to put the same restrictions on corporate organizers as it did on persons who organized multiple housing cooperatives; [that is] the corporate organizers must have the authority to organize a multiple housing cooperative and a majority of the corporate organizers must be Iowa corporations. Had the General Assembly intended to adopt the City’s position…[it] would have said a corporation could organized a multiple housing cooperative only with two or more natural persons….”

One-apartment-unit-per-member ownership ratio.  The City read Iowa Code 499A.11 to require this ratio.  It reads in part

The cooperative has the right to purchase real estate for the purpose of erecting, owning, and operating apartment houses or apartment buildings. The interest of each individual member in the cooperative shall be evidenced by the issuance of a certificate of membership. The certificate of membership is coupled with a possessory interest in the real and personal property of the cooperative, entitling each member to a proprietary lease with the cooperative under which each member has an exclusive possessory interest in an apartment unit and a possessory interest in common with all other members in that portion of the cooperative’s real and personal property not constituting apartment units, and which creates a legal relationship of landlord and tenant between the cooperative and member. The certificate of membership shall be executed by the president of the cooperative and attested by its secretary in the name and in the behalf of the cooperative.

The Court stated that Section 499A.11 is not an organizational statute; rather Section 499A.1 is the statute that states the requirements that must be satisfied to organize as a multiple housing cooperative.  The Court refused to glean a one-apartment-unit-per member ratio requirement from Section 499A.11, instead finding that it requires only a coupling of ownership and membership interests.  “Put another way, while section 499A.11 certainly requires that each apartment be linked with a corresponding membership interest, there is nothing prohibiting one person from holding ownership and corresponding membership interest in more than one apartment unit.”

The Iowa Supreme Court affirmed judgment for the Iowa City Board of Review.

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