Q If a building decides to adopt a transfer tax, can they impose a tax when an apartment is sold to an outsider but exempt from the tax when selling to an insider? The apartments that have been combined with other apartments, (three bedrooms or more), are those which are most likely to be sold to insiders. Virtually all combined apartments are currently, or have been in the past, owned by members of the Board of Directors.

—Upper East Side Shareholder

A According to Paul Bercovici, a real estate attorney based in Scarsdale, New York, “it is a long standing principle of New York corporate law that shares of capital stock of the same class must be equal in all respects. In addition, Section 216 of the Internal Revenue Code provides that individual co-op unit owners are generally not entitled to the same federal income tax treatment as other homeowners unless the cooperative corporation has only one class of stock outstanding.

“Business Corporation Law (“BCL”) Section 501(c) generally permits the imposition of a fee on the transfer of shares in a cooperative where such fee has been validly adopted. Prior to the 1986 revision of Section 501(c) of the BCL, the law in New York provided that a cooperative flip tax or transfer fee, which varied depending upon whether the seller of co-op stock had purchased their stock as an insider (i.e., from the sponsor) or from an outsider and whether the seller had owned his or her stock for at least five years, violated the above-noted BCL Section 501(c) prohibition against unequal treatment of shares of stock of the same class.

In 1986, the New York Legislature amended Section 501(c) of the BCL to authorize an exception to the statutory per share proportionality requirement for residential co-op corporations. Section 501(c) of the BCL was further amended in 1996. The current version of BCL Section 501(c) specifically permits variations in fees or charges payable to a residential co-op corporation upon the sale or transfer of shares of the same class provided: The variations in transfer fees are provided for in the proprietary lease, occupancy agreement or offering plan or properly approved amendments to the foregoing instruments; liquidation or other distribution rights are substantially equal per share; changes in maintenance charges and general assessments are fixed and determined on an equal per-share, per-room or percentage basis; and voting rights are substantially equal per share.”