Flip Taxes: What Can Your Co-op Board Get Away With?

Herrick partner, Andrew B. Freedland, was quoted in The New York Times "Ask Real Estate" column with a question from a reader about a pending flip tax, or transfer fee, as it relates to the closing of a sale on a small NYC cooperative. Flip taxes are typically imposed when co-op shareholders sell their shares, and they are traditionally used to fund capital expenses in the building. In this reader's question, they note that after initially rejecting a buyer, the board is now accepting them contingent on the sellers placing an extra five percent flip tax in escrow for a year, which would allow the board to claim the money if the raise the flip tax as announced.

The article notes that "It is unlikely that the governing documents allow the co-op board to raise the flip tax unilaterally. Every building is different, but an amendment to the proprietary lease or bylaws often requires a supermajority vote of the shareholders."

Andrew notes, The board cannot condition a sale based on a potential change to the co-op's bylaws. "If the flip tax is not in place when you sell, you cannot charge it," said Andrew. "I cannot charge you today what it costs tomorrow."

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