The Phased-In Flip Tax

An East Village co-op was in an uncomfortable but all-too-familiar bind. The building needed major work, but the reserve fund was anemic and the shareholders had pockets that went only so deep.

Some of the board members began promoting a transfer fee – commonly called a flip tax – that would replenish the reserve fund by taking 2 percent of the proceeds from every apartment sale. But board members who wanted to sell their apartments were less than thrilled with the idea. It got voted down.

But the need for repairs didn’t vanish. The co-op was locked into a mortgage that could not be refinanced. Maintenance was already substantial, and there had been a couple of assessments. A flip tax still seemed like the most viable solution – but how could the board persuade the required two-thirds majority of the 16 shareholders?

By proposing a phased-in flip tax.

“They agreed to give people one year to sell without a flip tax,” says the co-op’s property manager, Jeffrey Weber, president of Weber-Farhat Realty Management. “After one year there would be a 1 percent flip tax, and after two years it would go up to 1.5 percent. For people who oppose a flip tax, it’s usually personal – they’re thinking about selling their apartment. Giving them a year to sell without a penalty overcomes another typical objection – ‘When I bought my apartment, there was no flip tax. This isn’t fair.’ The phase-in gave them the chance to sell.”

For co-op and condo boards, nothing is certain but rising costs and taxes. Boards strapped for cash either have to keep raising maintenance or find alternate sources of funding. A steady revenue stream like a flip tax can help boards prepare for the inevitable. And, it turns out, there’s more than one way to sell a flip tax.