Q: A month before I sold my Upper Manhattan co-op, I discovered that I would have to pay a flip tax of 2 percent of the sale price at the closing. It’s a significant amount! When my wife and I bought the apartment in 2013, the seller paid $20 per co-op share for the flip tax. I asked the co-op board for evidence that they have the right to collect this tax. The board sent me documents about how the co-op operates, which included nothing about the flip tax. Are they allowed by law to demand this tax? Can I fight it?
A: Flip taxes — also known as a transfer fees — help co-op buildings raise money for repairs and capital improvements, and they must be described in your governing documents. If the terms of the flip taxes in your building changed at some point, you should have received written notice of a shareholder vote to make that change.
That’s because amendments regarding the flip tax usually cannot be made unilaterally by a co-op board.
“Unless the language of the proprietary lease gives the board the discretion to raise the flip tax from time to time, which is atypical, the flip tax can only be increased through an amendment of the proprietary lease, which generally requires the approval of tenant-shareholders owning two-thirds of the co-op’s shares,” said Scott S. Greenspun, principal with Braverman Greenspun, in Manhattan.
If you can’t recall such a vote, look in your governing documents, including your proprietary lease and your bylaws, for language authorizing the change. The terms are usually included in a section of the lease that contains rules governing how shares can be sold. If the tax isn’t expressly permitted in the lease, the board cannot prevent you from selling your shares if you don’t pay it, Mr. Greenspun said.
Co-op shareholders who have faced improperly implemented flip taxes have been successful in court. “You may have grounds to challenge its validity in court after closing,” said Ruta Behrend, a partner who practices real estate law at Tane, Waterman, & Wurtzel, P.C., in Manhattan.
You could seek a refund of the flip tax if it wasn’t legitimately adopted. Your lease may also allow you to recoup the legal fees you incur if you are successful in challenging the flip tax in court, Ms. Behrend said.
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