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Eliminating Broker Fees in New York?

Posted by Melvin Monachan | Apr 09, 2020 | 0 Comments

In early February 2020, New York regulators announced they were eliminating rental brokerage fees, drawing both applause from tenant advocates and condemnation from the real estate industry. The ruling stops the practice of renters paying broker fees, which in places like New York City, can be up to 15 percent of one year's rent.

This announcement was unexpected and sent a panic through the real estate industry, which has already been dealing with new tenant protections and rent laws.

Broker's Duties

Real estate brokers have often had a bad reputation for gouging potential renters, but they have played an important role in the landlord-tenant relationship. In lieu of a landlord, brokers often will show listings to prospective tenants, as well as provide guidance on what kind of apartments tenants should look for. Brokers also help screen or qualify prospective tenants for a landlord by checking their references and other evidence that the landlord requires.

In most other cities, a broker's fee is paid by the landlord enlisting their services. This is much more tenant-friendly because it saves upfront costs for the tenant. For example, in Chicago, broker fees are one-half to one month's rent, rather than close to two months' worth in New York.

Those who oppose eliminating renter-paid broker fees in New York have argued that landlords will simply pass that fee onto tenants by raising rents. Both sides of the issue have agreed that the entire system is inefficient for everyone, and it has been for years.

Real Estate Industry Fights Back

Shortly after the February 4 announcement to end renter-paid broker fees, a group of attorneys for the real estate industry filed for a temporary restraining order against the decision. Several major brokerages called the New York Department of State's decision “unlawful, erroneous, and arbitrary” and said that thousands of agents could lose their job.

Another affidavit filed by a brokerage said that they had thousands of deals “in which potential tenants are now threatening not to close the transactions,” or were refusing to pay agent commissions. A judge agreed and ordered that brokers could continue to collect fees paid for by renters until at least March 13, 2020, when the New York Department of State has to respond.

Landlord/Tenant Issues Can Be Complex

The landlord/tenant relationship can be complex in New York. Whether you are a landlord or a tenant, an experienced New York real estate attorney is your best bet to advise you on what you should do next. Contact one today to learn more.

About the Author

Melvin Monachan

Melvin Monachan is the founder of The Law Office of Melvin Monachan, PLLC, a full service, real estate law firm representing individuals, investors and corporate entities in all aspects of real estate law. On the transactional side, Melvin represents purchasers and...

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