The Fine Art of Selling a Flip Tax

First things first. Co-op boards can’t simply vote to impose a flip tax on all apartment sales. If the power to impose the tax is not in your co-op’s proprietary lease, an amendment to the lease is required. This will require a specified majority vote of shareholders, a so-called “super-majority,” usually two-thirds or three-quarters. If the necessary majority votes in favor, the board must also amend the by-laws.

But first you’ve got to sell shareholders on the idea that they should willingly forfeit a fraction of their profit if they ever decide to sell their apartment. Expect the stiffest opposition from the people who have lived longest in the building – because their apartment’s value has increased astronomically over the course of, say, three decades and therefore they have the most to lose when they decide to sell and have to pay the flip tax.

“A flip tax is a controversial issue, because not everyone wants to pay it,” says Norman Himmelfarb, a partner in the White Plains law firm Himmelfarb & Sher.

“Yes, it’s very tough to institute a flip tax once a co-op has been in existence for a while,” agrees Andrew Bruckner, partner in the law firm of Schechter & Bruckner. “But what we do, typically, is we don’t put it up for a vote right away. We have a number of informational meetings, and at these informational meetings, it’s very important to show people how capital improvements have to be made, such as in the roof replacement. And if that job is done with assessments, people will have to pay a lot of money as – whereas, if you do it through a flip tax, you can build up a reserve to pay for the capital improvements.”

It’s important to bring the right tools to the sales job.

“You have to have charts and spread sheets showing them how the flip tax will not harm them – that it’s actually pretty much the same as an assessment,” Bruckner adds. “And that’s what you have to explain to people. This is nothing new – it’s simply another way of assessing people. The whole theory is that the seller is suddenly flush with money, and perhaps paying 1 percent of the sales price won’t hit them so badly.”

The immediate aftermath of a sale is the ideal time to hit a seller with a flip tax, in Himmelfarb’s view. “It’s a good time to have it because it doesn’t feel like it’s coming out of the pocket as much as when you’re paying an assessment,” he says.

But be prepared. Even the best sales job can’t soften certain hard cases.

“There are some people who are just against this, and there’s no way they’re going to budge,” says Bruckner. “And if you get a number of those plus some people on the fence, you may never be able to get this to pass. When people are so vehemently opposed to it, I just don’t understand.”