NYC Tenants Must Pay Broker’s Commission

Real estate brokers are practically a necessity in real estate. They’re the ones who do all the heavy lifting, from researching and posting current property sales prices and rental rates to matching tenants with the properties of their dreams. If you’ve ever worked with a broker you know firsthand how helpful they can be.

But brokerage services aren’t free. Brokers can charge up to 15% of a tenant’s annual rent for fees alone. With the passage of New York State’s Housing Stability and Tenant Protection Act of 2019, tenants were no longer obligated to pay brokers’ commission as part of their rental fees. However, as of April 2021, the Court ruled otherwise.

How Did We Get Here?

Tenants paying brokers’ fees have always been scrutinized. Historically, the onus of these fees has been on the tenants, even if the landlord hired the broker. To address this, the Housing Stability and Tenant Protection Act was enacted in 2019.

The purpose of the bill was to reduce tenants’ upfront costs. In 2020, the Department of State published guidelines suggesting that prospective tenants should not be obligated to pay brokers’ commissions who are working on the landlord’s behalf. The guidance went into effect immediately and sent a shockwave through the real estate market.

The guidance was reversed after the Real Estate Board of New York and the New York State Association of Realtors challenged the law in court. The Court accepted the petition and instituted a restraining order. But proceedings were put on hold indefinitely due to the pandemic.

The Court’s Ruling

In April 2021, State Supreme Court Judge Susan Kushner questioned the legitimacy of the Department of State’s guidelines in the wake of the Tenant Protection Act of 2019, which restricted brokers from collecting commission from tenants. The Court ruled the guidelines “null and void” because there was no reference to brokers’ commissions.

Instead, the guidance was only intended to cover background check fees, credit check fees, application fees. And any other fees required of tenants during the lease application process.  Judge Kushner also pointed out that had a new law intended to cover the broker’s commission, it would have been made explicit in the guidance.

The judge also prohibited the Department of State from imposing any restriction that could work against the broker’s right to collect a commission from tenants. The Real Estate Board of New York, the primary party to the petition, welcomed the decision.  The decision was not a pleasant development for tenants.

What Now?

Housing advocates suggest that specific changes should be adopted to make housing affordable for tenants. Especially as it relates to paying a broker’s commission. If there is no restriction on brokers asking tenants for a fee, there should be legislation that puts fee limits in place.

For now, though, we can expect the Department of State to appeal the Court’s decision. Or, even better, we can cross our fingers and hope lawmakers can come up with a new law that prohibits brokers from asking tenants for a commission fee.

How to Avoid Paying a Broker’s Commission

The Court’s verdict has placed a temporary damper on tenants getting any chance at relief from paying brokers’ commission even when the broker is hired by the landlord. However, if you don’t want to or cannot pay the broker’s fee. There are other avenues that you can explore to alleviate paying the fee altogether.

These include:

• Looking for a no-fee apartment;
• Work directly with landlords without involving brokers, this could mean reaching out to them via social media or in-person;
• Solicit help finding an apartment from your network of family and friends; or
• As a last resort, consider negotiating the fee with a broker.

Conclusion

The Court’s verdict on the legitimacy of the Tenant Protection Act of 2019 is certainly a blow for renters. However, due to the pandemic, it is highly likely that some landlords will agree to pay the broker’s commission to attract prospective tenants. Also, definitely consider alternative ways for locating your next apartment that will cut out the need for a broker.

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