OLR Research Report

February 21, 2008




By: George Coppolo, Chief Attorney

You asked for background information on “flip taxes” in connection with condominium unit sales. You also asked whether other states allow or mandate them.


A “flip tax” is a transfer fee paid to a residential condominium or cooperative association when a unit is sold. It is typically paid by the seller, and is used to help raise money for capital improvements and maintenance without raising the monthly fees or assessing a flat charge to all residences.

We found one state, New Jersey, that explicitly authorizes a condominium association to impose such a fee. New York allows cooperative associations to impose this type of fee.

Attorney Matt Perlstein, a condominium law expert, advised us that “flip taxes” are probably imposed in some other states without explicit statutory authorization under the association's general statutory authority and based on notice in the condominium's or cooperative's controlling documents. He also believes that some Connecticut condominiums and cooperatives, especially in southwestern Connecticut, are currently imposing them. Connecticut law does not explicitly authorize or prohibit “flip taxes.”


In a case decided in 2005, a New Jersey court ruled that the state's condominium law did not authorize a condominium association to pass a resolution that required the payment of a one time non-refundable working capital contribution of $750 whenever there was a transfer of title to a condominium unit. The court held that such an imposition violated the provisions of the Condominium Act (N.J.S.A. 46:8B-1 to -38) which required the common expenses for maintenance of a condominium's common elements to be charged to all unit owners (Micheve, LLC v. Wyndham Place, 381 N.J. Super. 148 (2005)).

Apparently responding to this case, the New Jersey legislature amended its condominium law in 2007 (N.J. Stat. 46:8B-15). Under this amendment, if the master deed or bylaws authorize it, the association may levy and collect a capital contribution, membership fee, or other charge upon the initial sale or subsequent resale of a unit. The collection must be earmarked for maintenance or improvement of common elements to defray common expenses or otherwise. The charge may not exceed nine times the amount of the most recent monthly common expense assessment for that unit.

The amendment also validated any master deed or bylaws provision that authorized the imposition and collection of a capital contribution, membership fee, or other charge upon the resale or transfer of units before the legislation's effective date (Section 2 of N.J. Laws 2007, c. 165).


Information about New York for this report was taken directly from the Council of New York Cooperatives and Condominiums website (

Origin of “Flip Taxes”

According to the Council of New York Cooperatives and Condominiums, “flip taxes” began as an attempt to solve two problems related to the housing market during the early 1970's when many rental buildings were offered for conversion to cooperatives.

1. Many tenants living in rent controlled and rent stabilized apartments could not afford high purchase prices.

2. Many buildings were in bad condition because their owners had deferred necessary maintenance because their income from the apartments was limited by rent regulation.

Attorneys representing some conversion tenants looked for ways to (1) fund future repairs and improvements without charging shareholders big assessments and (2) keep purchase prices affordable. They came up with the concept of the “flip tax.” Under this arrangement, buyers pay a reasonable purchase price up front and when they sell their apartments, they are “taxed” to bolster the building's reserve fund.


Before 1986, some New York courts held that a cooperative association's board could institute a “flip tax” only if this power was specifically stated in the proprietary lease. These courts also concluded that a “flip tax” had to treat all shareholders equally because of a provision in the New York Business Corporation Law. In 1986, the New York legislature enacted a law that authorizes cooperatives to enforce any form of “flip tax,” if it is described in the original offering plan or its subsequent amendments, or if it is adopted as an amendment to the proprietary lease. Thus, in New York it has been clear since 1986 that for a “flip tax” to be valid it must either be part of a cooperative's organizing documents or in an amendment in the cooperative's proprietary lease. Such an amendment typically requires an affirmative vote of two thirds of all outstanding shares. In some cooperatives, the required vote is even greater (NY CLS Bus Corp 501(c) (2007).

Types of “Flip Taxes”

There are several different types of “flip taxes,” including per share amount, flat fee, percentage of sales price, percentage of net profits, and a combination of these methods.

Per Share Amount. The per-share amount is the most conventional and simplest type of “flip tax.” It treats all shareholders equally by imposing a “flip tax” of a fixed dollar amount per share. But this method can benefit sellers who bought years ago and paid far less than the current market rate, because they would be taxed the same amount as those who bought more recently at higher prices.

Flat Fee. A second method is to charge a certain flat dollar amount per transaction (e.g., $5,000 per transfer). This method benefits the owners of larger units who pay the same amount as the seller of a smaller unit.

Percentage of Sales Price. A third form of “flip tax” is a percentage of the gross sale price. While this method is straightforward, it can be unfair to those who lose money on their sale. In addition, it can prompt collusion between the seller and buyer to mitigate the affects of it. For example, the buyer and seller could agree on a sales price of $100,000 for the apartment, which would be subject to the “flip tax,” and a separate undisclosed transaction of $50,000 for the built-in bookcases and the kitchen counters.

Percentage of Net Profit. Another form of “flip tax” is one based on net profit. In such a case, the cooperative must carefully define its formula for determining the net profit. If a formula allows the seller to subtract from the sales price provision for improvements made to the apartment, there may be an incentive to pad costs in order to lower the net profit figure that will form the basis for the “flip tax.”

Combining Methods. It is also possible to set up a “flip tax” that combines two or more of the above methods. For instance, a “flip tax” could be a percentage of the gross sale price provided it exceeds the original purchase price. Or protections could be put in so that someone who has not made a profit on a deal can pay a lower fee.

Who Pays the “Flip Tax”

The standard form of contract for sale of a New York cooperative apartment has a paragraph that discloses who the cooperative requires to pay the “flip tax.”

Cooperatives generally require the seller to pay the “flip tax” before allowing the apartment to change hands. But the law does not prevent the seller from putting in a contract provision to make the buyer responsible for actually providing these additional dollars. Cooperatives could then add the amount of the “flip tax” to the price if the calculation is based on sale price.