Coops Option Waiver Fee

Asked by Robertg, Brooklyn, NY Tue Apr 21, 2009

Can a co-op revise the option waiver fee? If so, would the current option waiver agreement when you purchase the home apply to you or would the revised option waiver at the time you sell the co-op apply to you?

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Mitchell Fel…, Agent, Brooklyn, NY
Tue Apr 21, 2009
Dear Robertg:

Some of the older co-ops have the so-called "Option Waiver Fee." This is very similar to what is more commonly referred to as the "Flip Tax." This fee is usually paid by the co-op owner when they sell their co-op shares. Many of the buildings that have a "Option Waiver Fee" have modified them due to the fact that prices have gone up so high over the last 20 to 30 years. "Option Waiver Fees" where originally set up to help the co-op pay for big ticket maintenance stuff like a new roof or pointing of exterior bricks, etc. As prices got higher, the need for those funds was more easily covered so many co-ops lowered the Option Waiver fees accordingly.

Either way, be it an Option Waiver fee or Flip Tax fee, they can be raised or lowered. The nature of a co-op is such that the co-ops policies can be subject to change. All it takes is a majority vote by the board. Items like the maintenance amount, option waiver fee, flip tax fee and any other fee the co-op charges are put into place to keep the co-op financially secure. Most co-op boards are apprehensive about raising these fees because it becomes more costly to own within the co-op hence making it harder to sell and attract new buyers. For these reasons the only time a co-op board would consider raising these fees would be if the co-op was having financial difficulties and it was an absolute necessity.

As a buyer, the most important thing for you to do is research the financial health of the co-op before you sign a contract to purchase. Usually your attorney would do this for you (make sure you use an attorney that specializes in co-ops!) as the financials statements of a co-op are hard for the lay-person to understand. Your lawyer will want to view the last two or three years financial statements (it is required by law that all co-ops have these statements).

If the co-op is in good financial health, odds are these fees will not change, at least not in the near future. Also, in my 17 years worth of experience, the first change the co-op would make if they were short on funds would be raising the monthly maintenance because this would bring cash into the co-op immediately, whereas a change in the option waiver or flip tax fee may take a long time to bring extra money into the co-op.

With regard to the second part of your question... this is something that would also be subject to the co-op boards decision. I would imagine that they could "grandfather" existing owners into the policy change, but I highly doubt that this would occur because it would defeat the ultimate purpose of that change in policy.

If I can be of further assistance, please let me know. Also, if you are looking to purchase a co-op, I have several available in Brooklyn.

Mitchell Feldman
Associate Broker
Madison Estates & Properties, Inc.
Office: (718) 645-1665
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