If you have co-op and condo-related questions for FNYHC, please send them to FNYHC at info@fnyhc.coop, or call (718) 760-7540. All questions will receive prompt attention.

1. Our coop is considering imposing a FLIP TAX. Could you email me info regarding the pros and cons of such an action?

Pro Flip Taxes
If you are going to live there for a long time, there is a great benefit for having a flip tax. It is a fund source without going for a loan, assessment, raising maintenance or necessary work being

neglected!! Also, a flip tax is used to maintain and upgrade the building. The flip tax is not figured in as a regular budgetary item in the operating budget. A healthy reserve fund projects a belief is that the building in good condition will produce a higher price. Buyers gain comfort knowing future improvements will come from flip tax revenue and not from assessment or maintenance increases. The flip tax formula you use must be specific, so there is no question as to how it is calculated.

Selling Flip Tax
Go back three years calculate the flip tax you would have collected- look at the project you could have used the money for.

2. Have you ever heard of a co-op having a two-tier system? Old-time cooperators get back 40% of the resale price and newer cooperators get back 75% of the resale price. Is this legal? My co-op is a member of the Federation. This has caused a lot of dissent among the cooperators. I would appreciate any feedback on this that you may have.

In response to this question, FNYHC must qualify the response as follows:

1. This response is not a legal opinion.
2. The information and response is general in nature, as FHNYC have not reviewed your corporate documents.

Generally the Articles of Incorporation must set forth the following in relation to the shares a Corporation is going to issue:

• The aggregate number of shares which the corporation shall have the authority to issue, and if such shares are to consist of one class only, the par value of the shares or a statement that the shares are without par value. (2) If the shares are to be divided into classes, the designation of each class and a statement of the relative rights, preferences and limitations of the shares of each class. (3) The relative rights, preferences and limitation between series if any preferred class is to be issued in series, and the authority of the board to establish, designate and fix variations as to any such series.
• As to the shares of stock to be issued, a cooperative apartment corporation will typically have only one class of stock. In fact, section 216 of the Internal Revenue Code requires that the corporation have only one class of stock in order for unit owners to qualify for pro rata deductions for the real estate taxes and interest on mortgage debt paid by the corporation.

Pursuant to Business Corporations Law Section 501 titled Authorized Shares, section (c) reads in pertinent part as follows:

• Subject to the designations, relative rights, preferences and limitations applicable to separate series, each share shall be equal to every other share of the same class.

On July 24, 1986, the Legislature enacted Chapter #598 of the Laws of 1986 which amends Section 501(c) and reads in pertinent part as follows:

• "...With respect to corporations owning or leasing residential premises and operating the same on a cooperative basis, .... shares of the same class shall not be considered unequal because of variations in fees or charges payable to the corporation upon sale or transfer of shares...that are provided for in proprietary leases, occupancy agreements or offering plans or properly approved amendments to the foregoing instruments."

We suggest you consult with corporate counsel to review the relevant documents in your possession that pertain to this issue to determine whether revised section 501(c) applies to your particular situation.

3. What are the legal risks (if any) of a Co-op board member attending a closing without a lawyer representing the coop during a sale of an apartment between two parties?

• What is the Co-op's role during the closing?
• What papers need to be signed by coop during the closing?
• Should a Co-op's lawyer be present?
• What is a reasonable fee for this service?

A Cooperative should be represented by legal counsel at all closings, and the reason and fees are as follows:

• The Co-op should review the Contract of Sale and ensure that the Proprietary Lease, Bylaws and Offering Plan are complied with.
• The attorney should review the lien search and report, and determine the seller's stock and lease were not pledged, or are subject to any liens (Federal or State Taxes) or were pledged for a loan. If there is lien on the unit, the Co-op must receive a release of the lien called a UUC-3 form.
• The Buyer executes all corporate documents e.g. proprietary lease, resale and/or sublease policy, rules and regulations and acknowledges receipt and compliance with the proprietary lease, Bylaws, Alteration Policy and stock certificate.
• Co-op delivers the original documents to purchaser and receives the outgoing shareholders stock and lease. The stock and lease should be canceled. In addition, the old stock certificate should be placed in the Co-op stock book.
• The buyer and seller prepare and file the New York City and New York State Transfer Tax Returns. The Seller's attorney should execute an understanding to file the tax returns.
• The buyer and seller pay all maintenance fees, move-in and move-out deposits and maintenance to the Co-op.
• The buyer and its lender, if any, comply with all policies and lease requirements re Loans and Loan Recognition Agreements.

4. With the New York City Real Estate tax abatement about to end as of June 30,1999, what will happen to the owners of cooperatives and condominium units?

You are correct. The three-year Real Estate tax abatement does expire in the present form as of June 30, 1999. The legislation did also require the City of New York to develop and submit to Albany a long term plan to equalize real estate taxes paid by home owners despite the type of housing. This was due by December 31,1997. The City still has not submitted its plan. There is a good likelihood that a further extension of the real state tax abatement program will be passed in Albany. In 1998 the State Assembly passed an extension, only to be tied up for political reason in the State Senate. If there is a problem in obtaining this extension, the FEDERATION will outreach to you and the Co-op/Condo community for help.

5. How should a Board be concerned about window guards?

There was much publicity involving Board of Director possible criminal liability involving violations of the New York City Window Guard Law. After many articles appearing in industry publications, many Board members are concerned about their exposure. The Window Guard Law is one of many laws and regulations that exposes Board members to criminal liability.

Last year, Assemblyman Jeffrey Dinowitz, has introduced legislation to absolve any volunteer Board member from criminal liability when that Board member had no intent to violate the law or had no knowledge that such law was being violated. This bill is presently being reintroduced in the 1999 Albany session.

In the meantime, please review your apartment corporation's by-laws and/or certificates of incorporation to insure that the corporation will indemnify individual board members from certain liabilities and reimburse the board members for legal expense incurred. You should also review your directors and officers' liability insurance policies to see what is or is not covered by your policy.

The Federation suggest the following steps to be done in regard to the window guard law.

1. send annual form to each apartment in January of each year and follow up to make sure that each resident answers.
2. have apartment inspections, to check for children under the age of 10.
3. if a resident fails to return the form, or refuses access to the apartment, write to the Department of Health for assistance.
4. for a reluctant tenant, the building has a right to go into housing court for a access order.
5. resale or sublet application should have a copy of the window guard notice, be sure it is filled out and signed.
6. have building staff notify management, if a resident has brought a new child to the building.

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