ONE of the biggest challenges facing any cohousing group is what legal structure to adopt, to ensure it can attract sufficient funding, can provide members with the ability to decide their future and protect any financial contributions from members and any other supporters.
Potentially complicating the picture is what, if any, relationship the cohousing group might have with an over-arching organisation, such as a land-owner, which might be permitted, in law, to lease the use of the land, on which homes will hopefully be built.
The options are many, which can have a dizzying effect on the decision as to which one to choose.
These are, in no particular order: a charitable organisation, a co-operative, a Mutual Home Ownership Society, a fully mutual housing co-operative, a Community Benefit Society, a Registered Social Landlord, a Community Interest Company, a company limited by guarantee, a company limited by shares, and an unincorporated association.
And the choice of which legal structure to adopt will be influenced, at least in part, from the questions that perhaps have to be asked, such as the list below.
From the questions, one might be a step closer to finding the answers…
- How administratively easy to set up and how much might it cost to set up?
- What is required, in terms of any management group or board of trustees / directors / etc?
- How easy and costly is it convert from legal structure to another?
- How able are members to decide their own future, including designing their possible, future homes and the choosing of any management group?
- What, if any, authorities should the proposed legal structure require to be registered with?
- How well placed might the legal structure be to attract funds from traditional lenders, such as banks?
- How might the legal structure raise funds through other means, such as community shares or the issuing of equity or loan stock? And what obligations might be involved in paying a return to any ‘investors’?
- What mechanisms would be in place to protect any capital contributed to the legal structure by members? Not least if the principal borrower / fundraiser is the legal structure (and not the individual households within it) and it finds itself unable to honour its debt(s).
- How possible might it be to allow people to rent a home? More broadly, how possible to provide different tenure types?
- How possible might be it to convert people’s rent into at least a partial re-imbursement on the occasion of them leaving?
- How possible might it be to dictate the price of properties that become available in the future? For instance, to fulfil a pledge to provide ‘affordable’ housing in perpetuity?
- What, if any, tax implications might there be in the following scenarios: (1) an over-arching organisation somehow ‘leasing’ land to a separate legal entity, for the purpose of community house building? (2) The separate legal entity, that is the project itself, charging people – either a lump sum, a rent or a combination of both – in order to become a resident? (3) Either the over-arching organisation or the separate legal entity (project) seeking to at least partially re-imburse those who have rented homes from it? (4) The homes being given over to a future resident, albeit at a potentially ‘affordable’ price?
- What might these taxes be? Income Tax, Capital Gains Tax, Inheritance Tax, Corporation Tax, VAT, Land and Buildings Transaction Tax, Additional Dwelling Supplement and any other ‘stamp duties’?
- Besides any end-of-year accounts and payments to HMRC, what other statutory responsibilities might there be?
Mike Wilson is a member of the Place Design Scotland team
Picture credit: Place Design Scotland
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