Recent New Jersey and New York court decisions have made the “flip tax” a possible avenue of income generation for condominiums. A flip tax is a closing-related fee tied to the purchase price of the condominium unit. Condominiums should consider amending their bylaws to empower their boards to adopt, or to create a flip tax without board effort by requiring a new unit owner to pay a “membership fee”, “capital contribution fee”, “transfer fee”, or “privileges fee” equal to a specific percentage of the purchase price. Currently, most condominiums generate such fees, but base them on a flat rate unrelated to the purchase price, or a rate tied to the then current monthly maintenance fee. A fee tied to the purchase price allows that condominium to benefit from the strong real estate market and ever-increasing purchase prices. It is important however that the condominium’s bylaws clearly state the existence and legitimacy of these fees.
