Published: Sep 12, 2020

Updated: Dec 8, 2023

Housing Cooperatives: What UHF v. Forman Means for Real Estate Investors

[1]A housing cooperative or “co-op" is a corporation whereby the owners don't own their units outright; instead, each member of the cooperative purchase a share of the corporation that corresponds to a particular property, and which gives them the right to live there. The ownership is of the share in the cooperative corporation, not of the property itself. [2]United Hous. Found., Inc. v. Forman, 421 U.S. 837  (1975). [3] Id. at 841. [4] Id. at 842. [5] Id. [6] Id. [7]United Hous. Found., Inc. v. Forman, 421 U.S. at 843. [8] Id. [9] Id. at 845 [10] Id. [11] United Hous. Found., Inc. v. Forman, 421 U.S. at 846. [12] Id. at 840. [13] See Section 2(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77b(1). [14] Securities & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293, 298- 99 (1946). [15] United Hous. Found., Inc. v. Forman, 421 U.S. at 849. [16] Id. at 849-50. [17] Id. at 851. The Court noted that in the case before it, “the inducement to purchase was solely to acquire subsidized low-cost living space; it was not to invest for profit.” Id. [18] See Id. at 851. [19] See Id. [20] See Id. at 852. [21] See Securities & Exch. Comm’n v. Howey Co., 328 U.S. 293, 301 (1946). [22] See Forman, 421 U.S. at 857 (observing that the purchases of cooperative shares were not intended as an investment but were intended to provide essential services for the residents of the cooperative). [23] Id. at 852. The Court recognized some potential economic benefits that might accrue to purchasers of the cooperative shares, but determined that, on the facts before it, the possibility of such income was “far too speculative and insubstantial” to bring the transaction within the securities laws. See id. at 856. [24] See Id. at 847-52. The Howey requirement that profits arise solely through the efforts of others would not normally be satisfied in the case of cooperatives for three reasons: (1) because there are no profits paid on capital, the benefits of cooperative membership can arise only through use of the cooperative by the member (through direct patronage); (2) the economic savings to cooperative members arise primarily as a consequence of the nonprofit relation between the co-op and its members, rather than through the managerial efforts of others; and (3) where, as is often the case, cooperative members retain control over important decisions and participate in its business affairs, the „solely through the efforts of others‟ test could not be met. See id. at 848-51.


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