Cohousing the Next Boom for Boomers

Michael Polentz, co-chair of the real estate and land practice group at Manatt, Phelps & Phillips LLP

PALO ALTO, CA—The sharing economy is “booming for boomers.” According to a report released by PricewaterhouseCoopers, an estimated 7% of Americans consider themselves “providers” in the sharing economy. And for Americans over 65, the number jumps to 16%, says Michael C. Polentz, co-chair of the real estate and land use practice group at Manatt, Phelps & Phillips LLP, located in the Palo Alto office. Polentz, along with Elizabeth Levin, an associate at Manatt, Phelps & Phillips, LLP, located in the Los Angeles, address the issue further in the commentary below. The views expressed below are the author’s own. Seniors are benefiting from and providing ride-sharing services through Uber, temporary lodgings through AirBnB, and many other pooled services ranging from food delivery to pet care.  Real estate developers looking to bring the sharing economy home should turn their attention to this growing demographic of senior sharers by exploring the potential development opportunities of co-housing for seniors. The idea of shared resources in senior communities is far from new, but while the sharing once stopped at the eighteenth hole, today’s seniors are interested in pooling more personal resources like in-home medical care, home maintenance, meal preparation and even kitchen space.  This allows residents to reduce costs of living while benefiting from a tight-knit social community. Traditionally, co-housing developments have been grassroots, grown from an existing group of friends or relations seeking to create their own community. As such, the legal structures governing co-housing have been largely informal or ad hoc. Notwithstanding this historical practice, developers considering jumping into the co-housing space must contemplate at the outset the legal nature of residents’ relationships to the developer and to each other in order to allocate risk and rights of control among the parties. The potential legal structures to govern a senior co-housing community can be as varied as the communities themselves and often present both business and legal challenges. The first consideration in the legal structuring of a senior co-housing community must be how much ownership residents will have over the community. On one end of the spectrum, residents can own their residence outright, echoing a familiar co-op or condominium structure, and they would therefore be able to sell it or pass it to descendants upon the residents’ death. This structure, however, would may result in title to the property passing to, and being owned and occupied by, non-seniors. Further, it severely limits the options for securitizing the project.  On the opposite end is a “membership” structure similar to that used by the highly publicized “WeLive” project of WeWork, whereby residents pay a “membership” fee for the use of a bed, room, or residence, but do not enter into a traditional lease. This unorthodox model appears attractive to developer landlords, as it ostensibly shields the landlord from many of the traditional risks such as tenants’ holding over or liability for damage, but this arrangement is untested in any court. Moreover, the current consensus of most real estate and legal experts is that, despite the claims of “membership”, a court would likely treat the owner in such an arrangement as a traditional landlord, subject to all requirements of state landlord/tenant laws and regulations. One hybrid structure that has been promoted by some developers is to place ownership of the co-housing project in an entity and allow residents to be both shareholders in and lessees from such entity.  This model has the potential to give residents a stake in the ownership of their project, but eases the administrative challenges of management, financing, and transfer of resident ownership.  Notwithstanding the apparent benefits, securities laws may limit the number of shareholders in the project and the transferability of those shares. Developers looking to capitalize on the sharing economy and the aging American population need to consult thoughtful legal counsel early in the development discussion to help blaze a path (and avoid the numerous pitfalls) meeting the needs of both the developer and the potential residents in a shifting legal environment.