Weber-Farhat Realty Management: Finance

THE BIG PICTURE

New board members should talk less and listen more. For at least their first three months on the job, they should listen, find out who the players are, and understand what’s going on. Remember: they don’t know everything. They might think they can change the world, but they can’t. There are people who have been on the board for a very long time, and, although they know a lot, even they don’t know everything.

The first thing new board members should be taught is that they have a fiduciary responsibility to the co-op or condo. What that means is that they have a legal obligation to the property. They’re not there for personal reasons or to work out pet peeves with the co-op or condo. They are there to improve the lifestyle for everyone living there. If new board members are just following their own agenda and not the agenda of the co-op or condo, they can encounter legal repercussions.

Case in point: the flip tax. When a person sells her unit in a building with a flip tax, a percentage of the sale price goes back to the co-op or condo, usually for capital improvements. A flip tax helps keep a property’s maintenance or common charges down. Those who might be planning on selling their units will often vote down the passage of a flip tax because they don’t want to pay it when they sell. That’s wrong because those casting the “no” votes are not thinking of their fiduciary responsibility to the co-op or condo. The flip tax helps the budget tremendously. By getting 2 percent of a $1 million sale under the tax, the board doesn’t have to assess the residents when a capital project needs to be done. With about 10 percent of a building’s owners changing each year, that can amount to a lot of money very quickly.

BE SMART

A flip tax usually requires approval by a super-majority of shareholders or unit-owners. And it’s very hard to bring a flip tax to a vote if the board does not approve. We once managed a co-op that voted down a flip tax resolution. The following year, I brought it back onto the agenda. And this time I came a little bit more prepared. What we ended up doing was phasing in a 2 percent flip. So for a year before the flip tax was instituted, everyone knew that at the end of the second year there would be a half-a-percent flip tax in place. The following year, it went to 1 percent, and the year after that, it went to the full 2 percent. That way, if you were thinking of selling, you had a warning, and you could sell when the tax was smaller. That worked.

There was another building that didn’t accept it, however, and they have lost tens of thousands of dollars. They’re now having to have assessments when things go wrong in the building. If they had a flip tax, they wouldn’t have to assess. These are people who are not thinking long-term about what’s best for the building.