WHEN IS A FLIP TAX NOT A FLIP TAX?

The answer was yes in Raimondi v. Board of Managers of Olympic Tower Condominium.

John Raimondi had purchased, renovated, and sold three units in the condominium before attempting to buy Unit 28E. Upon acquiring title to that apartment, he executed a letter of agreement with the condominium that said he would pay Olympic Tower 7.5% of the profit on the apartment, less any broker's commission, if he sold the apartment within five years.

Raimondi bought the unit, and within four months had it renovated and sold. But rather than pay the condominium, he contended that the condo had no legal right to condition his buying the apartment upon his agreeing to pay the condominium when he sold. He sued and asserted four causes of action. Two of these sought a declaration that the agreement was void and unenforceable because it violated the condominium's bylaws and a section of the Condominium Act. Two others sought money damages, one on the grounds that the condominium had breached its fiduciary duty toward him, and the other on the grounds that the letter of agreement violated General Business Law Section 349, which addresses deceptive business practices.

The condominium argued that the letter of agreement did not violate the bylaws; that it did owed no fiduciary duty to Raimondi, and, even if it did, no fiduciary obligation was breached; the condominium's actions were protected by the Business Judgment Rule; the Condominium Act was inapplicable; and the letter of agreement did not violate General Business Law Section 349.

Raimondi claimed he was "compelled to execute" the letter of agreement and that the condominium imposed an unauthorized flip tax because the condominium's bylaws authorized only a one percent transfer fee. He asserted that the condominium had no authority to single him out and impose a flip tax higher than that which was authorized.

Raimondi also argued that by virtue of the letter of agreement, the condominium "illegally usurped [his] property rights and unlawfully restricted the alienability of the [unit in question]," that latter phrase meaning preventing a property-owner from selling a property. Raimondi claimed that the condominium breached its fiduciary duty to him by imposing a cost was not imposed upon other unit owners of the condominium and which violated the bylaws.

The court explained that a condominium's bylaws constitute a contract with the unit owners. Two fundamental principles of contract construction apply: (1) agreements are to be construed in accordance with the parties' intent; and (2) the best evidence of what the parties intend is what they provide in their writing.

The court then noted that a condominium board owed a fiduciary duty to the condominium and its unit-owners. The decisions and actions taken by the board were, however, protected by the Business Judgment Rule so that in order for Raimondi to trigger judicial scrutiny of the condominium's actions, he had to show that the condominium acted: (1) outside the scope of its authority, (2) in a way that did not legitimately further the corporate purpose, or (3) in bad faith.

The parties agreed that the letter of agreement was entered into when Raimondi entered into the contract to purchase the apartment, but before taking title to it. The court found that the condominium did not owe a fiduciary duty to Raimondi at that time because he was not a unit-owner of the apartment. Moreover, the court found that even if the condominium had owed him a fiduciary duty, the condominium's decision to enter into the agreement was a proper exercise of its business judgment. It also found Raimondi had failed to establish that the condominium's act of entering into the letter of agreement was outside its scope of authority under the bylaws.