Regulators relent: New guidance protects brokers’ fees

Cuomo administration yields to judge who overturned broker-fee ban

REBNY president James Whelan, State Sens. Julia Salazar and Jabari Brisport (Getty, Facebook, Whelan via Anuja Shakya)
REBNY's James Whelan and state Senators Julia Salazar and Jabari Brisport (Getty, Facebook, Whelan via Anuja Shakya)

Is it news that New York state regulators are following the letter of the law? When it comes to who is responsible for paying broker fees, the answer is yes.

The Department of State has updated its guidance to align with an Albany judge’s ruling from last month that landlords can continue to collect broker fees from prospective tenants.

The practice is common in New York City but has been under scrutiny since early 2020, when state regulators tried to spare tenants from paying for agents showing apartments on landlords’ behalf. The industry — predicting agents would lose their jobs — challenged the regulators in court and won, leading to the new guidance.

A typical broker fee is about 15 percent of a unit’s annual rent, which — when combined with first month’s rent and a security deposit — can mean tenants must come up with a five-figure sum just to move in. The broker fee alone for a Manhattan apartment asking the borough’s median rent of nearly $3,100 would be about $5,580.

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The ban was based on the Department of State’s interpretation of the Housing Stability and Tenant Protection Act, which passed in June 2019. But the ban was quickly blocked by a temporary injunction and in April, Albany Supreme Court Judge Susan Kushner ruled that the agency’s guidance “was issued in error of law and represents an unlawful intrusion upon the power of the legislature and constitutes an abuse of discretion.”

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State regulators could have appealed the decision, but legislators are trying to take matters into their own hands. Two state senators from Brooklyn, Jabari Brisport and Julia Salazar, introduced a bill weeks later that would ban landlords from forcing tenants to pay their broker fees.

In a memo that accompanies the bill, Brisport and Salazar say the proposal aims to clarify the intent of the new rent law.

“This legislation is necessary in order to save the State of New York the litigation costs that will be necessary to remedy an erroneous interpretation of the Statewide Housing Security and Tenant Protection Act of 2019 by a single court in April 2021,” the bill reads, referring to the judge’s ruling.

But it is far from certain that an appeal would succeed. The 2019 rent law makes no specific reference to exempting tenants from broker fees.

The bill is in the Senate’s judiciary committee, but with the legislative session ending June 10 and no Assembly version of the measure introduced as of Wednesday, it appears unlikely to pass this year.

In a statement this month, James Whelan, president of the Real Estate Board of New York, which had led the industry’s legal fight to overturn state regulators’ guidance, called the bill “deeply misguided.”