This condominium was comprised of thirty-eight "large, expensive, multi-bedroom units" and five "small, relatively inexpensive studios" intended "for the household help of the purchasers of the large units." So, five of these large-unit purchasers each owned their unit in tandem with one of the smaller units. The selling agent allegedly told some purchasers that they could sell the smaller units only to other owners of the larger units. But the condo's governing documents contained no such prohibition.

When one of the five large-unit owners gave indications of wanting to sell a smaller unit on its own and possibly to an outsider, the board quickly adopted a bylaw amendment prohibiting this. The owners of another of the tandem units sued to invalidate the bylaw amendment. They claimed that it constituted an unreasonable restraint on their use of the smaller units.

The lower court agreed, mainly because of the "unlimited duration" of the restraint on selling the small units, even though the court conceded that the restraint served a "valid purpose." But the appellate division, citing Anderson and Four Brothers, reversed the lower court's decision. It characterized the "purpose" of the restrictions as preserving "the character" of the condominium and did not find that "unreasonable." It dealt with the unlimited duration of the restriction by stating that it "can be modified or removed at any time by a duly called meeting of the unit owners to further amend the bylaws."

The court ended with the statement that "there appears no New York cases on point," but stated that two cases – one from Massachusetts in 1983 and one from Florida in 1993 – "have found such a restriction not to be an unreasonable restraint..." These out-of-state decisions — in Franklin vs. Spadafora (1983) and Metropolitan Dade County vs. Sunlik Corp. (1993) — buttress the case for condo flip taxes.

So what does all this mean in sum? Demchick supports the proposition that condo unit-owners are on notice that boards may pursue approval of bylaw amendments that restrain unit-sales in ways not anticipated. So potential condo-unit purchasers who want to be absolutely sure that they could never be subject to a flip tax should only purchase in condos with bylaws or other governing documents that prohibit flip taxes.

With the fading of concern in the courts about unreasonable restraints on condo-unit sales, and the recognition that unit-owners are not immune from unanticipated restraints, you can expect that at least some new condos are being organized with documents that expressly limit new restraints.

Otherwise, condos could continue to evolve to be much more like co-ops — thus further reducing the distinctions and further confusing and limiting the true choices of purchasers.

Robert Tierman, a longtime co-op and condo attorney, is a partner at Litwin & Tierman .

Adapted from Habitat June 2007. For the complete article and more, join our Archive >>