In January 2016, Hamptons.com posted an article regarding the rental laws in effect in the towns of Southampton and East Hampton, including a real estate broker’s responsibility as may be viewed by the New York Department of State, the regulatory agency empowered with the authority to license, regulate, and penalize real estate licenses. You can read the article here. The issue has found reality in a case regarding a seasonal rental in the Town of Southampton. The case in point has resulted in an apparent disagreement between the Appellate Division of the Suffolk County Supreme Court and the Department of State.
When the issue was brought before a lower court, it did find that the landlord had failed to acquire a rental permit as required by the Town and therefore the lease was illegal and no rent should have been collected. The issue at hand has to do with the responsibility of the real estate broker who represented the landlord. The court ruled that the broker had no responsibility to know or disclose to the tenant that the landlord did not have a rental permit. It relied on what it called the legal principle in New York of “caveat emptor” – buyer beware. In preparation for this article I consulted S. Anthony Gatto, Esq. General Counsel of the New York State Association of Realtors (NYSAR), and David A. Mossberg, Esq. Counsel of the Department of State. Mr. Gatto provided me with an article he wrote for the current July/August issue of NYSAR’s official publication. In it he states: “NYSAR has always been of the opinion that licensees should verify the legal status of a property before listing or selling it. NYSAR’s opinion is based on a long line of DOS decisions from the past 25 years. This obligation extends to verifying the owners of the property, all of whom must sign the listing agreement for sale or rent. Licensees who once claimed ignorance or ‘put their heads in the sand’ when taking listings that are illegal rentals or sales … are contrary to the licensing law.”
Mr. Gatto provided me with a DOS opinion issued on April 19, 2016 which answers an inquiry, “Does the DOS require a landlord’s agent to investigate/discover the legal status of a rental property or if the status of the property is unknown does this eliminate liability for license law violation?” The DOS opinion included the following statement: “A broker who fails to demonstrate a working knowledge of the property being marketed, fails to demonstrate the level of competency required to transact business as a licensee in violation of NY Real Property Law.” The DOS also stated, in part: “Any broker participating in a transaction involving an illegal rental is prohibited from collecting a commission.”
I also raised the issue of an apparent conflict between the court ruling and the opinion letter issued by the DOS with David Mossberg, the DOS Legal Counsel. His reply, “We disagree with that limited interpretation of the case and will find a broker liable for similar misconduct under a different theory of law which was not specifically litigated in that case.”
Anthony Gatto concludes his article with the following statement: “Failure to verify the legal status of a property may subject the licensee and their broker to discipline by the DOS as well as the return of any commission earned in such a transaction.”