Q: A month before I sold my Upper Manhattan co-op apartment, I learned that I had to pay a tax at closing of 2 percent of the sale price. That's a significant amount! When my wife and I bought the apartment in 2013, the seller paid $20 per co-op share for the tax. I asked the co-op board for proof that they had the right to collect this tax. The board sent me documents about how the co-op operates, which said nothing about the tax. Are they legally allowed to collect this tax? Can I object?
A: Flip taxes – also known as 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 have changed at any time, you should have received written notice of a shareholder vote to implement that change.
This is because changes to the flip tax cannot usually be made unilaterally by the board of directors of a cooperative.
“Unless the language in the proprietary lease allows the board of directors the ability to increase the flip tax from time to time, which is unusual, the flip tax can only be increased by an amendment to the proprietary lease, which generally requires the approval of the tenant shareholders who own two-thirds of the cooperative's shares,” said Scott S. Greenspun, a principal at Braverman Greenspun in Manhattan.
If you can't remember such a vote, look for language in your governing documents, including your property lease and bylaws, authorizing the change. The terms are usually contained in a section of the lease that contains rules about how shares can be sold. If the tax isn't specifically authorized in the lease, the board can't prevent you from selling your shares if you don't pay them, Mr. Greenspun said.
Co-op shareholders faced with improperly levied flip taxes have had success in court. “They may have grounds to challenge the validity of the post-closure tax in court,” said Ruta Behrend, a real estate law partner at Tane, Waterman & Wurtzel, PC, in Manhattan.
You could seek a refund of the flip tax if it was not lawfully collected. Your lease may also allow you to recover legal fees if you successfully challenge the flip tax in court, Ms. Behrend said.
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