A Flip Tax is a fee that a co-op charges (usually to the
seller) upon the sale of the apartment. The general
purpose of the Flip Tax is to increase revenue for
the co-op without raising monthly maintenance fees.
The origin of the Flip Tax dates back to the early days
of co-op conversions when investors were buying
co-ops (with no intention of living in the co-op)
and then flipping" the apartment for a profit.
The Flip Tax was a way for the co-op to get a share
in the investor's profits. In some cases,
condominiums have also instituted Flip Taxes.
To implement a Flip Tax the co-op board must amend
the co-op’s proprietary lease or the co-op’s by-laws.
In order to amend either the proprietary lease or
the by-laws, there must be an affirmative vote of
the co-op’s shareholders (a change of this nature
would typically require two-thirds of all shareholders
to approve). Gathering this type of support can be
difficult depending on the makeup of the co-op.
Implementing a Flip Tax is predictably supported by
those shareholders who are planning on living in
the co-op for a long term and opposed by those
shareholders who intend to sell in the near future.
Whether the seller is going to be required to pay
the Flip Tax will depend on the terms and conditions
of the co-op’s Flip Tax provision. For example,
the co-op’s Flip Tax provision might state that it
does not apply to shareholders who enter into contracts
of sale within 60 days of the adoption of the Flip tax. Alternatively, the Flip Tax may apply to all sales
closed after the implementation of the Flip tax.
Thus, in order to determine whether the Flip Tax
applies to the seller, you must look to the terms
of the relevant provision in the co-op’s by-laws or
proprietary lease.
Important Tip: Co-ops may use a variety of
formulas to calculate a Flip Tax. Generally,
this calculation is based on either a set percentage
of the sales price, a set number of dollars per
shares sold, or a percentage of the profit netted
from the sale. Some co-ops have also tied the
Flip Tax percentage to the seller’s length of
ownership of the co-op. For example, a shareholder
who has lived in the co-op for a longer period of time
(i.e. ten years) may pay a smaller Flip Tax than
a shareholder who has lived in the co-op for a shorter
period of time (i.e. one year).
By: Neil B. Garfinkel,
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices
at Abrams Garfinkel Margolis Bergson, LLP | 
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