New York's Cooperative and Condominium Community

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How a Madison Avenue Co-op Finally Got a Flip Tax Passed

Carol J. Ott in Bricks & Bucks on December 28, 2022

Upper East Side, Manhattan

Flip tax, transfer fee, co-op and condo boards, super majority, capital projects, assessments.

Feeding the reserve fund is now more important than ever (illustration by Marcellus Hall).

Dec. 28, 2022

It’s a tricky dilemma for co-op and condo boards. A healthy reserve fund has always been a high priority, and in the wake of the Florida condominium collapse, lenders are scrutinizing those funds like never before. Yet a primary means for replenishing reserves — a flip tax on apartment sales — usually requires approval by a two-thirds super majority of shareholders or unit-owners, a dauntingly high bar.

Case in point: the board at a 118-unit co-op on Madison Avenue tried to pass a flip tax, also known as a transfer fee, four times without success. One of the main reasons the board continued to fail, says president Kathy Kahng, was the makeup of the building’s residents. More than half of the apartments were studios, and the average shareholder stayed about five years.

“If you know you’re only going to be here for a couple of years, what do you care about a transfer fee?” Kahng says. “Residents said, ‘Just charge me the assessment. I’m not voting for a transfer fee. I’m moving soon.’”

But in 2018, a confluence of events encouraged the board to try again. These included a mandatory building facade project growing in scope; more studio apartment owners buying neighboring apartments and combining them with their own, thus becoming more invested in the co-op’s long-term prospects; and the anticipation of an upcoming million-dollar elevator modernization project.

“We sent out letters, held meetings, knocked on doors and all that stuff,” Kahng recalls. But at the annual meeting the vote fell slightly short of the two-thirds of shares necessary for approval. With that result, the board changed its strategy. “We decided to focus on the 25 or 30 apartments that didn’t vote,” Kahng says

The board crafted a new message that carried a stick and a carrot. It told the shareholders that it was going to have to impose a hefty assessment to pay for the facade and elevator work, but if it could secure the votes of a few more apartments to approve the flip tax, the board would be able to reduce the assessment by 25%.

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“Several of the shareholders said, ‘Wait a minute, I voted for the transfer tax. I don’t think my neighbor did though,’” Kahng said. This spurred a grassroots effort to get out the vote, with neighbors speaking to neighbors.

Kahng sent out a letter to shareholders. In it she said that if the co-op had had a transfer tax of 1% of the purchase price 10 years ago, it would already have raised hundreds of thousands of dollars, the reserves would have grown, and the assessment required today would be half as much.

“It was not just a selling point,” she says. “That’s the true story.”

And the truth hit home. On the board’s fifth try, the flip tax passed. Now 1% of every apartment’s selling price goes into the reserve fund. 

“I think the reason why we were successful this time was two things,” Kahng surmises. “One, not as many studios remained in our co-op; and two, we have mandatory capital projects required by the city with black-and-white deadlines.”

The transfer fee was slated to go into effect in 2020, just as the pandemic hit, but the board suspended it for six months. The board has the right to reduce, suspend or eliminate the transfer fee, but it can’t raise it without going back to the shareholders. Given this co-op’s history of difficulty reaching a super majority, that’s a prospect that appeals to no one on the board.

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