Ban Broker Fees for Tenants

Justification

This legislation is necessary in order to remedy an erroneous interpre- tation of the Statewide Housing Security and Tenant Protection Act of 2019 (HSTPA) by a single court in April 2021.

Pursuant to NY RPL § 238-a(1)(a), "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..." That language is clear, precise, and unam- biguous in prohibiting landlords and others from collecting brokers' fees from prospective tenants.

Consistent with the clear and explicit language of this provision, the New York Department of State issued.interpretive guidance on the ques- tion of whether a landlord's agent could collect a "broker fee" from a prospective tenant. The Department of State answered: "No, a landlord's agent cannot be compensated by the prospective tenant for bringing about a meeting of the minds." This guidance correctly identified that a "fee to bring about the meeting of the minds" would effectively be a "payment, fee or charge before or at the beginning of the tenancy," and would therefore be explicitly prohibited by the clear terms of NY RPL § 238-a(1)(a).

Unfortunately, and in direct conflict with the law and the interpretive guidance of the Department of State, a single court has interpreted the "sponsor's intent" differently, and ruled that landlords are not prohib- ited from collecting brokers' fees from prospective tenants under the Statewide Housing Security and Tenant Protection Act of 2019. This legislation is necessary to correct for the erroneous judicial opinion.

Importantly, this legislation would simply require that the landlord pay the brokers' fee for its own agents, instead of allowing a landlord to shift the cost of paying its own agents onto the tenant. Brokers' fees can be a major expense, typically reaching fifteen percent of a tenant's annual rent. Across the United States, in almost all jurisdictions other than New York, it is typical for the landlord to pay this cost of compensating its own agents.

Imposing brokers' fees onto tenants creates a major obstacle:for tenants, at a time when rents are skyrocketing and pandemic-era govern- ment supports are no longer available. This is especially true for the nearly one million low-income renter households living in New York City, who earn at or below two hundred percent of the federal poverty line, or $43,000 for a family of three. In 2022, the lowest-priced two-bedrooms on the market in New York City ranged from $1,860 in Bath Beach, Brook- lyn to $2,200 in Canarsie, Brooklyn. With a fifteen percent brokers' fee, first month's rent, and security deposit, this translates to at least $7,000 on hand just to move into an apartment, 16%- of a low-in- come family's annual income. While some households may use their savings for this major expense, it is typical that low-income tenants do not have any savings to fall back on. Sixty-six percent of low-income tenants had less than $1,000 in savings in 2021. Forty nine percent of Black tenants and sixty percent of Latin American tenants of all income levels had less than $1,000 in savings in 2021.

This legislation would simply reinstate the original intent of the HSTPA, require landlords to pay their own agents as a matter of basic fairness, and bring New York into line with most other jurisdictions within the United States.

Prior legislative history

2021-22: S.6427

2023-24: S2783

Fiscal implications for state and local governments

None.

Effective date

This act shall take effect immediately.