What Is a Flip Tax and How Can It Affect Your Co-op Sale?

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Discovering the Flip Tax in Co-op Sales

When residents decide to sell their co-op apartment, they often meet an unexpected guest at the closing table. This guest goes by the name of the flip tax, a fee that can significantly eat into the seller's profits. As one Upper Manhattan co-op owner found out a month before selling, a flip tax of 2 percent of the sale price was demanded at closing. This revelation was a surprise, especially since, when purchasing the apartment in 2013, the flip tax was a flat amount of $20 per co-op share.

What Is a Flip Tax and How Can It Affect Your Co-op Sale
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Understanding Flip Taxes

Flip taxes, or transfer fees, serve as a pivotal revenue stream for co-op buildings. The funds collected are primarily used for repairs and capital improvements within the community. The legal foundation for these fees lies within the co-op's governing documents. Their imposition is not arbitrary but must comply with specific regulations and the approval of co-op shareholders.

The Process of Implementing Flip Taxes

Scott S. Greenspun, a principal at a Manhattan law firm, underscores that changes to the flip tax structure require more than a simple decision by the co-op board. Indeed, any increase or modification generally demands the consent of tenant shareholders owning two-thirds of the co-op's shares. This procedure ensures that shareholder voices are heard, maintaining transparency and fairness in the co-op's financial dealings.

Challenges and Litigations

Not all flip tax tales end without dispute. Shareholders may find themselves in situations where the flip tax seems improperly levied. Ruta Behrend, a partner specializing in real estate law, points out that owners can challenge its validity if the flip tax was not legitimately adopted without the proper shareholder approval or if it's not explicitly allowed in the lease. Success in court could mean refunding the flip tax and possibly recouping legal fees incurred during the challenge.

The Role and Impact of Flip Taxes

Why does this all matter? Flip taxes are significant in a co-op's financial health and operational stability. They are critical for ensuring that buildings can afford necessary upkeep and enhancements without overburdening residents with high maintenance fees or assessments. For potential sellers, understanding the flip tax's implications is crucial. It affects the net proceeds from the sale of their property, influencing decisions about when and how to sell.

Flip Tax Controversies and Considerations

As the landscape of co-op ownership evolves, so too do the policies surrounding flip taxes. The tale of discovery, surprise, and occasionally contention over these fees illuminates a crucial aspect of co-op living and selling. It behooves all co-op shareholders to stay informed about their building's financial policies, including the detailed stipulations of flip taxes. Engaging in and voting on these matters can save a lot of confusion and potential legal trouble.

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