Flip Tax Question
Can a co-op board pass a flip tax after a contract to buy/sell has been signed but just prior to the closing? In other words, the flip tax suddenly emerges after a contract has been signed. Legal or no?
Can a co-op board pass a flip tax after a contract to buy/sell has been signed but just prior to the closing? In other words, the flip tax suddenly emerges after a contract has been signed. Legal or no?
OP, are you the buyer or the seller, and are you bothered because you are on the hook for the flip tax on the present sale, or because (if you’re the buyer), you’ll be on the hook for it when you sell in the future?
Any which way, you have to look at the underlying documents — the real estate contract and the co-op’s bylaws, proprietary lease and maybe even house rules. Also, if you are the seller and feel the timing of this was targeted to screw you specifically, you *might* have a breach of fiduciary duty claim against the board. Consult with your RE lawyer.
In really large buildings you don’t know for a fact which apartments are on the market. You might have proof of some, and rumors of others, but the board really don’t know until they get the packet.
But, instituting or raising a flip tax isn’t something that is easily done. A board can decide they SHOULD institute one, but then they need to select an amount, and draft the proposed language. But then they have to market it and lobby for it (since most proprietary leases require that majority) so that it passes; they probably even have to have a special meeting for the vote…this all pretty public, and takes a lot of time.
If the seller posed the question, and really didn’t know, his building has a more liberal lease than most (powers given to board), or he wasn’t paying attention; if it’s the buyer, the seller might be clueless or have hidden the fact that lobbying for a flip tax was going on.
Sorry I responded so harshly…I’d probably be pissed off at the timing, but having a reasonable flip tax can be a good source of income for buildings that otherwise only have maintenance.
–I looked at an apartment once that had a 30% flip tax! That’s high!
I can only speak for our board, and we have held off on things like a small flip tax increase when something was far along in the sale process. And we know when everything is on the market bcs, like many co-ops, shareholders have to inform the board before each open house.
Maybe in really large buildings they don’t know? Even that I can’t imagine.
“A Jackass thing to do?” Really? A board can’t plan their decision around everybody else. A board generally doesn’t even know that an apartment is for sale until a completed application packet ends up at the admissions committee. They probably aren’t doing it to be stinkers, but to raise money. Repairs need to be done, tax needs to be paid, etc.
And with respect to the legality of a flip tax, it all depends on the governing documents. In most cases, flip taxes ARE allowed, but they need to be voted in by a super-majority. Similarly, if how a flip tax is calculated is changed, a majority is also required. The seller should look at the governing documents.
I know of some buildings that have very low maintenance and HIGH flip taxes; others that have moderate maintenance and moderate flip taxes. If work needs to be done, money needs to be raised; flip taxes are one way of doing it, and it discourages FLIPPERS, if 1-3% of almost every apartment they sell goes back into its coffers.
It’s legal, if that’s the question.
If you’re the buyer, and it pisses you off enough to want out, it’s easy to get out in a co-op (terms changed, throw the board interview, etc) or reduce the sales price – done all the time after the contract is signed.
If you’re the seller, it’s a jackass thing to do to you. Our board wouldn’t do it. But it can be done, no doubt.
How much is the flip tax? If it’s considered unusually onerous by banks, you may have a hard time getting a mortgage for the desired amount, even though you won’t pay this until you sell. I’ve had buyers who had to increase their downpayment by the amount of the flip tax, and others who were able to get the co-op to write a letter to the bank stating that they wouldn’t charge flip tax if it was a foreclosure sale.
Standard contracts usually state whether or not a flip tax exists and who pays it. So, if you have a fully executed contract prior to this change, your contract should state there is no flip tax. Talk to your lawyer and see what she recommends. Sounds like you have reason to void contract without penalty.
This is largely a seller’s issue, as $$ comes out of sellers pocket. If the $$ is enough, worth consulting a co-op/condo lawyer and I would frame the question not as whether the board can enact the tax but whether it can be applied retroactively to an existing contract. A long shot, but worth asking about. Are there circumstances that suggest some improper motive by the board in connection with this deal?
Wait, are you asking as a potential buyer or seller?