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Under the New York Business Corporation Law, a cooperative may impose a transfer fee, or flip tax, on the sale of shares pertaining to a cooperative unit.However, such a flip tax must be adopted in accordance with proper procedures and incorporated in the Proprietary Lease for the cooperative units.If a flip tax is not properly adopted and incorporated into the cooperatives governing documents, it is invalid.(Please see the June 2008 issue of this Client Advisory for a case in which collection of an improper flip tax was enjoined.)

The court in Carling v. 205-67 Apartments, Inc., 2008 WL 2340356, 2008 N.Y. Slip Op. 5308 (1st Dept June 10, 2008), found that a cooperatives flip tax was not incorporated into a proprietary lease, occupancy agreement, offering plan, or properly approved amendment thereto, and was therefore invalid.The court did not immediately enjoin the flip tax, holding that further proceedings were necessary on procedural grounds, but its decision suggests that the Cooperative will be ordered to refund the flip tax that the plaintiff paid under protest when he purchased his unit.