New York’s New Broker Fee Rule: Can You Get Your Broker Fee Back?

Photo of me, on the right, viewing the current JPG Legal office before I signed the lease.

As described in The New York Times, the New York Department of State has just issued a formal guidance declaring that making a tenant pay for a broker’s fee when renting an apartment is illegal. This means that if a landlord hires a broker to help them find a tenant for an apartment, the landlord must pay the broker the fee directly rather than passing on the cost to the tenant. This new rule is a clarification of one of the provisions in the historic tenant protection law passed in June (going into effect upon signing on June 14, 2019) thanks to efforts from the Upstate Downstate Housing Alliance, a coalition of over 70 organizations including New York City Democratic Socialists of America (DSA). This particular provision says that landlords cannot charge prospective tenants fees for applying for an apartment or signing a lease, beyond a $20 application fee. This new rule clarification is a huge win for tenants in New York. Finally people looking for apartments in New York won’t have to save up or borrow an absurd amount of money in order to have access to most apartments, just like people in most other states. Detractors of this rule might argue that the lost revenue for the landlord will just be made up for by increased rent, but that clearly benefits renters because it means their costs are spread out over the course of several months rather than paid all at once, reducing the difficulty of finding a new apartment for people who might have trouble coming up with a one-month security deposit, first month’s rent, and a nearly two-month’s-rent broker fee all at once. In addition, anybody moving into a rent-stabilized apartment will clearly save money because the owners of those units will not be able to jack rents up to cover the broker fee. What’s my interest in this? Well, in addition to being an attorney, I’m licensed as a real estate broker in New York as well. I’m also a member of New York City DSA and its Lower Manhattan Housing Working Group. While I didn’t take a bus up to Albany and get arrested like some of my friends, nor did I draft legislation or organize any events, I did go to several actions around the city pushing for the passing of this legislation. Perhaps even more importantly, my fiancée and I signed a lease in December for an apartment in Brooklyn and paid a massive broker fee for that privilege (1.8 times one month’s rent). So can people like us, who signed leases after June 14, get our broker’s fees back? And if so, how? It’s hard to say, really. The language of the law was not very clear and did not mention broker fees specifically, so this government guidance is likely to be challenged by brokerages as well as landlords, and they may avoid giving any refunds until these challenges are resolved. There’s also an argument to be made that the new guidance is essentially a new rule, and is not enforceable retroactively. According to a New York Times piece, some renters were able to get rebates from brokers for exorbitant application fees when a similar guidance was issued by New York DOS in September saying that the June law not only prevents landlords from charging more than $20 to potential renters for application fees, but also prevents them from having their brokers do it on their behalf. Who would you ask for this refund: the broker or the landlord? Really, you can ask either one or both, but ultimately the money would probably come from the landlord. The landlord is the one who broke the law and can be taken to court more easily. The broker, however, may be subject to professional discipline, so they do have some incentive either to get the landlord to pay or refund you out of their own pockets. Unfortunately for us and a lot of others, we live under this landlord and we love our apartment. Because our unit isn’t rent-stabilized, we’re terrified of harming our relationship with our landlord. Arguably the most important provision of the nine bills activists were trying to get passed last year, Sen. Julia Salazar’s Good Cause Eviction Bill, did not make it into the final law that Cuomo signed. Because of this omission, our landlord has the right to raise our rent however much they want at the end of our lease. So if we demand a refund of our illegal broker fee, they can either make us pay for it in the form of a rent increase, or simply raise our rent to the point where we have to move elsewhere. This means that realistically, we probably won’t be demanding this fee back unless we move within the next year or two and the landlord loses their leverage. But if you aren’t worried about burning bridges with your landlord, maybe because you’ve already moved or you don’t plan to renew your lease, then you may want to send threatening letters to both the broker and the landlord, warning them of possible legal consequences if you aren’t refunded for your illegal broker fee. Even better, see if you can find an attorney who will do it for you for free. Alternatively, you can wait a few months to see how things shake out. The New York DOS might issue more guidance or a judge might issue a decision, at which point your best course of action may be clearer. 2/11/2020 update: A judge has temporarily blocked the rule until further notice while brokers and landlords challenge it.