This page provide basic information on legal structures for intentional communities. Our listed legal consultants may be able to help determine which forms could be workable for your location and goals. Founders often want to ensure that future generations will preserve the original intentions and values. Careful choice of legal structure can help carry the original vision forward.
From an unaffiliated organization, templates by the Sustainable Economies Law Center give a head start in legal documents for a wide variety of organization types, including co-ops and co-owned LLCs.
A Utah-based estate lawyer has reviewed the following information for accuracy. Keep in mind that some laws differ by state and province. Please contact us if you have additional information that would improve this resource page. We especially want to provide free legal contract templates that founding groups could use, instead of starting from scratch.
Fixed Equity Co-op
Under this ownership structure, the co-op as a separate entity owns the totality of the actual real estate, and individuals own a part of the entity. This allows for owners of the entity to set requirements for how the real estate is handled. Co-op owners and founders can also set restrictions on what an owner’s shares in the co-op can sell for. Depending on the goals, this can help to create a longer-term housing model. Some consider this one of the most ideal legal structures for intentional communities. However, an Amisto Cohousing consultant mentioned one IC having paid a hefty sum to move out of a co-op model and into a corporate legal structure that gave them the flexibility they needed.
+ This structure can prevent gentrification of your building or cooperative neighborhood.
– A co-op prevents the buy-in from being a high-return investment. This helps if the intent is to keep housing affordable, but hinders if an owner wants to reap a profit when selling.
– A co-op can be more expensive than a corporate structure, based on what interest rates lending institutions are willing to give. Banks are not familiar with this structure and expect there may be legal hassles. This can make it harder to get a loan.
3 types of resident-owned community structures
Land Trust
Landowners can place property in a trust or under a conservation easement. Depending on the local laws, land can be governed by such trusts or easements for a hundred years, a thousand years, or in perpetuity. Generally, to be successful, these need an organization that can help to make sure the trust or easement terms are followed for their set duration.
+ Potential to protect natural resources in perpetuity as you continue to live and work on the land.
+ Reduce or eliminate land tax.
– Expensive to legally establish (unless done in conjunction with an organization focused on conservation).
– Descendants may have access to but not ownership of property.
– May require tax planning to avoid future tax consequences (but, if done right, there may be tax benefits that arise).
A contractual trust (also called a pure trust or constitutional trusts) involves three parties: the creator of the trust, the trustee, and the beneficiary. A legal document is used to create a contractual trust wherein an individual transfers ownership to a trustee that agrees to administer the land trust. The trustee could be a non-profit group. After transferring property to a land trust, the transferring owner usually does not retain the power to sell the property.
Alliance of Canadian Land Trusts https://ltacanada.ca/alliances/
U.S. land trusts http://www.landscope.org/connect/find/landTrusts/
Tenancy in Common
Property can be owned by multiple individuals. This is a common form of communal-type ownership that preserves an owner’s right (in many jurisdictions) to transfer, sale, or bequeath their ownership to another. This ownership type differs from “joint tenancy” in that an individual’s TIC ownership does not transfer to the other owners automatically when one dies. A tenancy-in-common agreement gives a buyer a share of the actual property. A private tenancy-in-common agreement may give an owner the exclusive right to occupy a specific unit. Each buyer has their own loan, but because the property hasn’t been cut into individual parcels like a condo or subdivision, all share the property tax.
+ TIC is an avenue for buying real estate that is out of the price range of many individuals.
+ There are online platforms that can help you connect with potential residents or co-investors who may or may not want to also reside at the property. Pacaso and Kocomo help you connect for fractional ownership in luxury vacation homes, while Sharetini focuses on metropolitan areas. This is not an endorsement of these companies, nor has ICmatch been paid to mention them.
+ TIC can often be accomplished without an attorney’s assistance, though you still structure an agreement among co-owners.
– Other owners may be tempted to sell out when land value rises. This can give rise to new owners to deal with or problems maintaining your own ownership due to an increase in the costs of the land. Again, while this type of ownership can occur without an attorney, you are best protected if you have an owner agreement. Agreements should set forth buy-out terms such as when and how an owner can sell. Rights of other co-owners need to be clear, otherwise one leaving member might try to force the sale of the entire property to get their share out and maximize the profit.
– When an existing co-owner wants to sell (or dies and the inheritors want to sell), you may end up with unsuitable neighbors and co-owners. Your contract needs to stipulate fair terms for approving buyers. The terms should not completely block a sale at a fair market value, or you may end up in court defending your contract.
– Banks and insurance companies often only want to deal with 6 or fewer owners if they are issuing a mortgage or loan on the property.
Non-profit
Some communities, especially those focused on preservation of land or certain characteristics of the land, hold real estate in a non-profit. Shareholders or members of non-profits, however, are not allowed to have any actual interests in the assets of the non-profit. This makes it harder for a non-profit to hold land for purposes of living on, but they are often good vehicles to hold community centers, parks, trail systems, or other types of communal-based areas that are for the entire community. Often ICs have a non-profit that applies to some of their land, in addition to another legal structure that owns the portion of residential land.
+ Non-profits in the U.S. can receive donations up to $500,000 for land purchase. Donors can often deduct the amount donated from their income tax obligations.
– It’s unclear how to structure membership buy-in that ensures investors a lasting co-ownership. Those with the funds often are donating to acquire the land to achieve certain philanthropic purposes.
Corporation
Corporations often own strata or condominiums or other structures where people live closely and have to maintain shared space. This has been one of the common legal structures for intentional communities defined as cohousing. One corporate structure that can work for intentional communities is to have different levels of contribution thru purchase of shares in the corporation, then all residents rent from the corporation. Thus non-shareholders can also be allowed to rent, if that is part of the bylaws. This allows greater flexibility for shareholders. The increase in land value doesn’t necessarily transfer to increased share value, but can be funneled into other financial interests the group has agreed on, including prosocial goals.
+ Many jurisdictions make these easy to form, and often people can more easily join and exit financially. Courts have familiarity with the laws governing them.
+ Banks understand and often will more easily support this structure, meaning it can be easier to secure loans.
+ Business interests have worked to expand the rights of corporations substantially. Some jurisdictions have laws that complicate buying and selling of corporate ownership, which can be a help or a hindrance for IC goals.
– A board that gets elected on an ongoing basis makes the decisions. Hence, there is potential for a future board to change the bylaws and rules even if the founders’ intentions are carefully crafted.
– A corporation usually has more significant tax obligation than some other entity types. It may have to pay income taxes on what is received.
Natural Asset Company
These hold the rights to the productivity and health of natural assets. Owners can buy into a Natural Asset Company. Ownership can even be exchanged on the New York Stock Exchange. These companies are designed to incentivize proper stewardship over natural resources by allowing owners to profit off of the resources when they are used in sustainable ways.
+ Potential to protect natural resources and earn a profit at the same time.
+ Can buy and sell ownership fairly easily through the New York Stock Exchange.
– Potential to exploit natural resources if they are not set up correctly.
Private Membership Association
A private membership association (PMA) sets up a contractual agreement between the members. Some PMAs may have an entity that the members contract through. Other PMAs have no formal entity and all relationships are governed through contract. A PMA usually sets forth contractual rights and obligations of the members and restricts access to community benefits to those who are members only. These may utilize other legal structures to hold title to property, as a PMA larger than a few members may encounter too many complexities to holding property on its own.
A PMA is commonly used (a) to create intentional communities that have strong shared values and (b) to ensure those values are followed. Since the PMA is a “private” community, some laws that only apply to the “public” may not fully apply to the relationships and transactions of those in a PMA.
+ PMAs allow for the creation of strong communities with shared values.
+ These can give members more flexibility with some forms of regulation (but not all).
– PMAs require a fair amount of work (i.e., legal fees) to set up correctly and get them functioning well.
http://pmapower.org/the-private-domain-is-a-protected-domain/
First Nations (Native American) Land Partnership
One IC founder purchased First Nations land for a tiny home village. Her husband was First Nations though she was not. The associated tribe often controls the land. State or county governments have limited jurisdiction over tribal lands. This allows for communities to have some flexibility or options that communities outside of Native American land would not have. Communities of RVs or mobile homes might find these workable legal structures for intentional communities.
+ Bypass zoning and other restrictions that may apply outside tribal land.
– Non-natives usually can’t have ownership. Some tribes will allow a non-native to lease land, but there’s no guarantee that a future chief would honor the original contract. You can’t take them to court, because they are independent of the typical jurisdictions. Communities must maintain a strong working relationship with all involved.
Municipal Incorporation
A municipal corporation is the legal term for a local governing body, including cities, counties, towns, townships, charter townships, villages, and boroughs. According to Wikipedia, “there are many unincorporated communities and areas in the United States and Canada. Most other countries have very few or no unincorporated areas.”
+ Create your own zoning.
+ Escape government bureaucracies (then create your own).
– You need the agreement of a percentage of the current residents.
– Higher failure rates because of their legal and managerial autonomy.
Single-entity Ownership
See our page about situations in which non-shared ownership can be an appropriate solution.
