I'm a tenant in NYC. Can I get back a broker fee that I paid?

I’m a tenant and I previously paid a broker fee. Can I get back the broker fee I paid?

Businessman with real estate

In the last few days, several stories came out in major news outlets that identified information released by the New York Department of State concerning broker fees. The information related to the major housing legislation that was passed in 2019, and specifically concerned broker fees. As a result of this news, I was asked by several people the following: I’m a tenant and I previously paid a broker fee. Can I get back the broker fee I paid?

As mentioned above, the NYS Legislature passed sweeping legislation, known as the Housing Stability and Tenant Protection Act of 2019 (commonly referred to as the HSTPA 2019). These changes in the law have been celebrated as huge wins for tenants in NYC. I’ve previously discussed some of the changes, as they relate to eviction proceedings.

Change in the New York State Law

The news about broker fees was part of the changes in the law back in July 2019. It was a brand new section that the Legislature created, NYS Real Property Law Section 238-A. The new section 238-A states:

“Except in instances where statutes or regulations provide for a payment, fee or charge, 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 as provided (by law)[ . . . ]”

If Nothing Changed, Then What’s New?

This was the language of the new law back in 2019, and remains the law today. Upon the passing of the law, it appeared that business went on as usual in the real estate world. Landlords were still using brokers, and tenants were still paying broker commissions.

Moreover, in late 2019, the New York State Department of State issued a statement of guidance which clarified application of the new law. Nothing in this statement suggested that landlords and/or landlord brokers were prohibited from charging broker fees to tenants.

Then, a few days ago, the New York State Department of State issued a revised statement of guidance on the HSTPA. In this statement, dated January 31, 2020, the Department of State clarified its position on broker fees, and stated that:

“No, a landlord’s agent cannot be compensated by the prospective tenant for bringing about the meeting of the minds. NY RPL Sec 238-a(1)(A) provides, in part, ‘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….’ The fee to bring about the meeting of the minds would be a “payment, fee or charge before or at the beginning of the tenancy” other than a background or credit check as provided in this section. Accordingly, a landlord’s agent that collects a fee for bringing about the meeting of the minds between the landlord and tenant (i.e., the broker fee) from the tenant can be subject to discipline.”

I Paid a Broker Fee. Am I Entitled to Get the Broker Fee Back?

Circling back to the original question: if I paid a broker fee, am I entitled to get the broker fee back?

Unfortunately, the response “it depends” doesn’t even suffice here. A better response is that “it’s unclear.” Firstly, the HSTPA went into effect June 14, 2019. So, if your tenancy started before that date, and a broker fee was paid, you’re probably out of luck.

It has further been reported that a spokesperson for the Department of State issued a statement that the guidance is not intended to apply retroactively (although I cannot locate the source of that statement).

The real tricky part is for those renters that paid a broker fee between June 14, 2019 and January 31, 2020. The law was in effect at the time, but the Department of State had not issued any guidance. Further, the statement of guidance that the DOS issued in September 2019 was silent on the issue of broker fees paid by tenants.

As of this writing (February 8, 2020, the NYS Department of State website, under Legal Memorandum LI05, still suggests the old rules:

If the specific apartment sought is subject to a listing agreement between the landlord and a broker, the broker with whom you will be dealing likely represents the interests of the landlord. It is important to understand that, even if the broker is representing the landlord, in most transactions the tenant is responsible for paying the broker’s commission. The tenant is free, however, to negotiate with the broker as to when and how the commission is earned and should insist on a written commission agreement with the broker. Without a written commission agreement, the commission is earned when the broker has obtained oral agreement between the landlord and tenant on the essential terms of the tenancy, even if the tenant never takes occupancy or signs a lease.

Keep in mind, though, that the Department of State cannot dictate law. It will be up to the legislature and the courts to decide (1) whether or not this law, in fact, prohibits a tenant from paying a broker fee to the landlord’s broker; and (2) if this DOS guidance is enforceable, whether or not it applies retroactively. The DOS guidance statements are not legally controlling. Several real estate boards in New York have already stated their intention to sue the State concerning this issue.

Is There Anything I Can Do?

If you’re a renter and want to try and recover the broker fee that you paid, you can try one or more of the following. First, you can reach out to the landlord and/or broker and demand a return of the fee. Second, you can file a formal complaint against the broker with the Department of State. (Generally, it’s a good idea to try step one first to mitigate damages and necessity of legal action.) If trying to work it out privately gets you nowhere, and filing a complaint with the State seems fruitless, you can always choose to sue the landlord and/or broker in court. Since many deposits are less than $25,000.00, you’ll probably bring the case in Small Claims or Civil Court of the county you’re in.

Conclusion

The HSTPA of 2019 continues to upend the real estate market here in NYC. Brokers should proceed with caution moving forward asking for fees. The safe approach would be to advise the landlord that s/he must pay their fee. For tenants finding a place, stand your ground on not paying a broker fee (unless you hired the broker to represent you, of course – then they can charge you). Until the State Legislature and/or the courts clarify how this law is to operate, it remains unclear whether or not you, as a tenant, can get a return of a broker fee that you paid.

Share This!
>

Looking to evict a tenant?  Sign up to get access to a Holdover Template Package