Updates to the Housing Stability And Tenant Protection Act of 2019
In June 14, 2019, the New York State Senate, together with the State Assembly and Governor Andrew Cuomo, approved a sweeping overhaul of New York State’s rent laws, offering Tenants numerous new protections against evictions and rent increases. However, due to the breadth of such protections, together with some vague drafting, has resulted in a number of disputes as to the intent of the law.
One particular item which has been particularly contentious is relating to broker fees. In New York, it was traditional that the tenant would have to pay the broker a fee, which could range from one month of rent to 15% of the yearly rent for the unit, at the time of signing the lease. As part of the changes, the following section was added: “§ 238-a. Limitation on fees. In relation to a residential dwelling unit: 1. (a) Except in instances where statutes or regulations provide for a payment, fee or charge, no landlord, lessor, sub-lessor or grantor may demand any payment, fee, or charge for the processing, review or acceptance of an application, or demand any other payment, fee or charge before or at the beginning of the tenancy, except background checks and credit checks as provided by paragraph (b) of this subdivision…”, which is capped at $20, with the sole exclusion being for retirement communities. At the time this was instituted, it was unclear as to whether this provision was intended to limit broker fees, and as such, brokers continued to charge tenants.
To date, in order to clarify the above section, the New York Department of State has issued three (3) successive Guidance to Real Estate professionals, dated September 13, 2019, November 15, 2019, and the latest dated January 31, 2020. In each of these guidance’s, it indicates that the $20.00 limitation applies to licensed real estate brokers and salespeople acting as an agent of the “landlord, lessor, sub-lessor or grantor”. Furthermore, the latest of these states that “A licensed agent that collects a fee greater than $20.00 or fails to advise the landlord that such fees are prohibited may be subject to discipline by the Department pursuant to Section 441-c of the New York Real Property Law.” However, the rule does not apply to licensed agents when the agent has been formally engaged to represent the interests of the prospective tenant or when the agent is brokering the sale of a property, including within a cooperative or condominium.
More recently, a challenge to this Guideline has been filed in the Supreme Court of Albany, to overturn this interpretation of the law. While this order to show cause specifically enjoins the determination contained in the guideline “issued on or about February 4, 2020”, it does not address the prior guidelines issued in the months beforehand. As such, it is still unclear as to what the law intends, with regards to broker fees. In order to see the Order to show cause, click on the link below.