Condominiums and Flip Taxes
I am representing the owner of a condominium and she is considering selling her unit. The condominium board has just implemented a flip tax (the “Flip Tax”). I have only previously seen co-ops impose a Flip Tax. May a condominium board legally impose a Flip Tax on the sale of the condominium unit?
Yes, although Flip Taxes are more common in co-ops, condominium boards may also legally institute a Flip Tax. A Flip Tax is a fee that a co-op or condominium charges (usually to the seller) upon the sale of the property. To implement a Flip Tax, the condominium board must amend the condominium’s by-laws, which often requires approval from at least two-thirds of the condominium unit owners.
Because condominiums are considered real property, whereas cooperatives are considered personal property, condominium boards are subject to additional restrictions on their ability to implement a Flip Tax. Under New York Law, it is unlawful to impose an “unreasonable restriction on the alienation” of real property (i.e. a condominium unit). In this context “alienation” means the ability to sell or transfer the property. An overly burdensome Flip Tax could be considered an unreasonable restriction on alienation. A condominium board should speak to its legal counsel in order to structure the Flip Tax so that is deemed to be reasonable (i.e. setting a Flip Tax that is a flat amount, rather than a Flip Tax that is a based on a percentage of the sale price, may make the Flip Tax “reasonable”).
Important Tip: For more information please see our previous Legal Line Question of the Week on Flip Taxes.
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|Neil B. Garfinkel,
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP