Reversing taxes: What can your co-op board get away with?

Q: At our 10-member co-op in South Harlem, the new board announced but did not vote on an initiative to increase the flip tax from 2 percent to 7 percent of the gross sales price. A sale has now been pending for months and is awaiting board approval. The seller’s attorney sent a letter addressing the suspicious timing of the flip tax announcement and delays in the sale. After initially rejecting the buyers, the board is now accepting them — on the condition that the sellers deposit an additional 5 percent flip tax for one year, which would allow the board to collect the money if they do so Increase flip tax. Is that legal?

A: You must consult the cooperative’s governing documents to find out how to increase a flip tax or transfer fee in your building. These fees are collected when cooperative shareholders sell their shares and are typically used to finance the capital costs of the building.

It is unlikely that the governing documents would allow the cooperative’s board to unilaterally increase the flip tax. Every building is different, but changing the lease or bylaws often requires a majority vote of shareholders (usually two-thirds or three-quarters).

Transfer fees typically range from 1 to 3 percent, but can be higher for buildings that are part of government programs, such as. B. Housing Development Fund Corporation cooperatives will be higher, said Peter R. Massa, partner at Fox Rothschild.

An increase from 2 percent to 7 percent is unusually large and should be questioned by shareholders. Does the board plan to use the increase to cover one-time or recurring costs?

In New York City, there is no obligation on a board of directors to take action on a potential sale within a specific time frame, but every board has a fiduciary duty to their company. Delay in potential sales could adversely affect the marketability of the Units and potentially reduce their value.

The board cannot condition a sale on a possible change to the co-op’s bylaws, said Andrew B. Freedland, a partner in Herrick’s real estate department. “If the flip tax doesn’t apply when you sell, you can’t collect it,” Mr. Freedland said. “I can’t charge you today what it will cost tomorrow.”

Assuming that the governing documents prohibit the board’s actions, the seller’s attorney should write a demand letter to the board stating that it does not have the authority to collect the flip tax itself and that the seller will notify the board will be liable for any damage resulting from his actions.

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