Flip Taxes or Transfer Fees What You Need to Know

In New York City, it is not uncommon for boards and managing agents to levy a “flip tax,” or a transfer fee paid to the co-op or condo association by owners who sell their units.

“Flip taxes are extremely beneficial as an ongoing funding source for building reserves and capital improvements,” observes Richard Montanye, a CPA with the Uniondale, New York-based tax and business consulting firm Marin & Montanye, LLP. “Buildings that have flip taxes generally have fewer assessments, and may have lower debt levels as well.”

But while condo associations in New Jersey could certainly use the money provided by such fees, the practice never quite took off in the Garden State. Additionally, a major real estate legal ruling—Micheve, LLC v. Wyndham Place in 2005—put a limit as to what boards are allowed to do at point of sale, requiring them, in many situations, to look to other means of generating revenue.

Robert Griffin, a partner with the law firm of Griffin Alexander, P.C. in Randolph explains that, due to the result of the aforementioned case, “The imposition by defendant condominium association of a non-refundable capital contribution fee whenever there is a transfer to title to a condominium unit violates the provisions of the Condominium Act, requiring that common expenses for maintenance of the common elements by charged to all unit owners based upon their proportionate individual interests in the common elements, as well as the defendant’s master deed and bylaws.”

In layman’s terms, a policy must be spelled out explicitly in an association’s master deed or bylaws; it cannot be established by resolution. This decision placed something of a stigma on the transfer fee or resale contribution, and has led most associations in New Jersey to embrace other moving-related charges, and to rarely issue any fee to the seller at all in most cases (although there are exceptions).

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