Q: A month before selling our Upper Manhattan co-op, we found out that we will have to pay a resale tax of 2 percent of the sale price at closing. That’s a lot of money. When my wife and I bought our apartment in 2013, the seller paid $20 per share of the co-op in resale tax. I asked the co-op board for proof that they have the right to collect this tax. The board sent me documents about how the co-op operates, but they didn’t say anything about the resale tax. Am I legally allowed to charge this tax? Can I appeal?
answer: Flip taxes (also called transfer fees) are required in your governing documents because they help multifamily buildings raise capital for repairs and capital expenditures. If the terms of your building’s flip tax were changed at some point, you should have received written notice of the shareholder vote to make the change.
That’s because flip tax amendments generally cannot be made unilaterally by a co-op’s board of directors.
“Unless the proprietary lease language gives the board discretion to increase the flip tax from time to time, which would be unusual, increasing the flip tax would require an amendment to the proprietary lease, which would require approval by the tenant-shareholders, who typically own two-thirds of the co-op’s stock,” said Scott S. Greenspan, a principal at Braverman Greenspan in Manhattan.
If you can’t recall such a vote, look for language in your governing documents, such as your lease or articles of incorporation, that would allow you to make the change. Usually, the terms are written in the section of the lease that lists the rules governing how stock can be sold. If the lease doesn’t expressly allow the tax, the board can’t block the sale of stock if the tax isn’t paid, Greenspan said.
Co-op shareholders who faced improperly implemented resale taxes have been successful in court. “There may be grounds to challenge its validity in court after the transaction is completed,” says Ruta Berend, a partner who specializes in real estate law at the Manhattan law firm Tane, Waterman & Wurtzel.
If the resale tax wasn’t implemented lawfully, you can seek a refund, and if you fight the resale tax in court and win, your lease may allow you to recover legal costs, Berend says.
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