Are Rental Broker Fees Illegal in NYC?

Rental broker fees are unequivocally legal in NYC and New York State. There is no law which prohibits a real estate agent in New York City from collecting a commission from a landlord or a prospective tenant. Learn More: https://www.hauseit.com/rental-broker-fees-illegal-nyc/

The topic of rental broker commissions was the subject of much confusion and controversy in 2020. We’ll tell you why in this video.

I’m Nick at Hauseit. Visit https://hauseit.com to learn how to save money if you’re buying or selling a co-op, condo or townhouse here in NYC. So let’s get started!

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The controversy over the legality of rental broker fees in NYC started on 6/14/19. This was when Housing Stability and Tenant Protection Act of 2019 was passed into law. This sweeping set of rental regulations included a limitation on security deposits, caps on rental application fees and other tenant-friendly changes to market-rate, rent-stabilized and rent-controlled apartments.

A few months later, on 1/31/20, the New York Department of State issued a memorandum which provided guidance on how to interpret the new law.

To everyone’s surprise, this memo included language which effectively banned traditional rental broker fees in NYC by prohibiting landlords’ agents from collecting commissions from tenants.

While it was generally understood that the new law imposed limits on other types of rental fees (such as application fees), broker commissions specifically weren’t being targeted by lawmakers at the time.

Therefore, it appeared that the Department of State may have overstepped in its interpretation of the new law.

In response, the Real Estate Board of New York (along with several prominent brokerage firms) promptly filed a lawsuit on 2/10/20. The judge issued a Temporary Restraining Order which barred the Department of State from enforcing its interpretation of the law. In other words, rental broker commissions remained legal pending the resolution of the litigation.

The Department of State ultimately lost in court on 4/9/21. In her court order, Albany Supreme Court Judge Susan Kushner concluded that “The guidance was issued in error of law and represents an unlawful intrusion upon the power of the Legislature and constitutes an abuse of discretion.”

As a result, the Department of State was forced to issue revised guidance on 5/25/21 which made it abundantly clear that it is legal for a landlord’s agent to collect a broker fee from a prospective tenant.

Here’s the exact language from the revised guidance released by the Department of State:

CAN A LANDLORD’S AGENT COLLECT A “BROKER FEE” FROM THE PROSPECTIVE TENANT?

The Acts do not, in and of themselves, prohibit a landlord’s agent from collecting a “broker fee” from a prospective tenant nor do they authorize the Department to commence a disciplinary proceeding against a landlord’s agent for doing so.

So, we hope this makes it abundantly clear that rental broker fees are completely legal in New York City as of this filming.

However, if you’re currently searching for a rental in NYC, you might have noticed that an increasing number of listings are being marketed as ‘no fee.’ This means that the landlord, as opposed to the tenant, has agreed to pay the broker fee. We think this trend towards ‘no fee’ rentals (with landlords paying broker fees) will continue in NYC over the coming years.

Keep in mind that it’s always possible that New York lawmakers could introduce new legislation which explicitly bans brokers from collecting rental broker commissions from tenants.
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Hauseit LLC, Licensed Real Estate Broker
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