The Department of State has intervened in the economics of New York’s rental market.
Landlords must now pay the broker fees for real estate agents they hire to represent their interests, according to new guidance from the DOS.
This is a reversal from the tenant-pays system that is the norm in rental transactions in New York City.
Any real estate agent acting on behalf of a landlord that accepts a broker fee paid by a tenant could be subject to discipline. Agents representing a tenant are not affected by the guidance.
The guidance is dated Jan. 31 and offers the DOS’ interpretation of the rent laws. Though guidance is not legal advice and is subject to change, it has been used since the laws passed in June to clarify implementation, most notably on whether real estate agents must also adhere to a cap on the amount they can charge renters for application fees.
DOS’ interpretation is drawing strong pushback from the industry. The Real Estate Board of New York, which learned about the guidance yesterday, says it’s “exploring legal action” to reverse the interpretation.
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In a Wednesday email, the trade organization advised members to call, email the DOS and post their opposition on social media.
“The DOS issued a body blow to thousands of hard working New Yorkers,” Reggie Thomas, REBNY’s senior vice president of government affairs, told The Real Deal. He argued the new cost of landlords paying brokers fees instead of tenants would lead to an increase in rent.
“That [additional cost of broker fees] gets amortized over the course of the entire year,” he explained.
The guidance also notes that the DOS will not penalize managing agents for condo and cooperative boards collecting more than $20 for rental applications. That said, it noted that it would not be taking a position on the legality of the practice.
The broker fee issue is familiar territory for REBNY and the agent community. Last year, New York City Council member Keith Powers introduced a bill that would have capped the amount a tenant can pay towards the broker fee of a landlords’ real estate agent.
“This came out of the blue,” said Thomas. “We’re looking at every single option available to us [to stop the DOS’ interpretation]… There will be no stone unturned.”
Write to Erin Hudson at ekh@therealdeal.com