After the New York Department of State issued a “guidance” to last year’s rent laws, banning the long-standing practice of asking renters to pay a brokers’ commission, all hell broke loose. Renters and tenant advocates rejoiced, while professionals in the real estate market panicked.
There were more than 25,000 licensed real estate brokers in New York City as of early 2019, according to New York’s Department of State. / Ashitaka San, Creative Commons
Less than a week later, brokers’ fees were back, following a lawsuit against the Department filed by the Real Estate Board of New York and other powerful players in the industry. For now, a judge has temporarily blocked the guidance from going into effect until March, when the Department will respond in court
In the wake of all the real estate drama, New Yorkers were left with nothing but questions and concerns. Fortunately, NYCityLens has some answers—and we’ve tried to leave out the fancy real estate terms and legal jargon.
For starters, what exactly is a ‘brokers’ fee”?
If you’re looking to rent an apartment in New York City, chances are you’ll encounter the landlord’s middle man—known as a broker or leasing agent. The landlord’s broker is in charge of the apartment’s listings, viewings, and leases.
NYC is one of the few U.S. cities where residents are forced to pay this middleman’s commission, an upfront fee of 12 to 15 percent of the lease, commonly referred to as a brokers’ fee. This fee is in addition to the prospective tenant paying first month’s rent and a security deposit upon signing the lease. Last year, 45 percent of NYC’s rental listings included a brokers’ fee, StreetEasy told the New York Post.
But there’s another type of broker called the “Tenant Broker,” and fees paid to them have nothing to do with the ban. While the landlord’s broker works on the landlord’s behalf, the tenant broker is hired by the tenant to negotiate the best possible lease terms and represent the tenant’s best interests. This type of broker is completely optional and is paid a separate fee by the tenants, should they choose to hire one. And “Renters in New York have always been able to find apartments on their own if they so choose,” said Chelsea Hale, a tenant broker with the real estate agency TripleMint. “There will always be a market for people who want an advocate in the rental process.”
Is this ban a result of a new law?
No. News of the “brokers’ fee ban” came out of the guidance released in early February of 2020 by the Department of State to help “licensed real estate brokers, salespeople, and other interested parties understand” the Statewide Housing Security & Tenant Protection Act of 2019, also referred to as “The Acts.” The Acts, passed seven months earlier, are a collection of provisions that strengthen tenant protections in New York.
Question #5 in the Department of State’s clarification asks and attempts to answer, “Can a landlord’s agent collect a ‘brokers’ fee’ from the prospective tenant?” This was the question that set the real estate market ablaze. The Real Estate Board of New York, which represents influential real estate professionals, petitioned the court to order the Department of State to invalidate the guidance, specifically “to invalidate Question 5 and its response that pronounced that a landlord’s agent cannot collect a brokers’ fee from a prospective tenant.” The Board argues that the guidance attempts to improperly interpret the existing law. In addition, Board claims the impact of Question 5 on the real estate community was “immediate and devastating,” citing instances of tenants backing out of existing agreements and demanding the return of already paid fees.
So, what does the temporary restraining order actually mean for me as a renter?
If you’re planning on renting anytime before March 13, get your wallet ready for paying the landlord’s broker fee. On February 10, 2020, a judge temporarily blocked the state guidance, which means brokers’ fees are back on for the time being.
But that doesn’t mean they’re back forever.
“The court didn’t opine or anything, they just signed an order, which is typical in requesting a temporary restraining order because it’s kind like a grand jury situation with a one sided presentation,” explained Robert Desir, an attorney with the Legal Aid Society. “So, you know, until they see what the judge does, it gives the relief that [the real estate professionals] were looking for, and also shields brokers from any punishments until there’s a chance to fully brief.”
If I already paid a brokers’ fee after the June law, can I get a refund?
Unfortunately, no. Definitely not with the temporary restraining order in play.
But what about if the guidance eventually passes through court unscathed?
Again, probably a No. Before the judge temporarily barred the state guidance, the New York Department of State did clarify that the guidance is not retroactive, and can only be applied to future rentals.
Will the guidance eventually pass in court?
Who knows? We won’t know the definite answer until March 13, when the Department is scheduled to appear in court. As an attorney, Desir speculates “landlords are raising the argument that this guidance is not a guidance, but a rule.”
Desir explained that there is a specific administrative procedure that must be followed when passing a rule. If the court determines the guidance is a “rule,” and agrees with the landlords, then goodbye guidance and hello brokers’ fees.
On the other hand, “if the court determines that it was a mere guidance, a clarification of law that already existed, then it has a chance, a strong chance of passing through,” he said.
Could there be a rent hike if the guidance does pass in court in March?
It’s hard to predict the future, but many brokers, like Hale with TripleMint, think so. The reason: landlords would be paying their brokers out of their own pockets, and would likely want to reach into the renters pocket to make up the difference. “The rental market has already seen a significant rise in rent prices. Historically, tenants had the option to pay a larger fee up front in exchange for lesser rent. Now, because landlords need to pad the rent in order to pay the agents they hire, tenants lose that option,” she said. But, she adds, “An unintended consequence of rents increasing is that it becomes harder for tenants to meet landlords requirements to qualify for an apartment.”