Brokers In An Uproar Over Guidelines Issued By The New York Department Of State Regarding New Rent Laws

On January 31, 2020 New York’s Department of State issued new guidelines to real estate brokers with respect to the Housing Stability and Protection Act that became effective June 14, 2019. Two previous articles on the subject have appeared on this website since that date.

It was reported in the February 8th issue of The New York Times that the Real Estate Board of New York (REBNY) and the New York State Realtors Association (NYSAR) were filing a lawsuit against the Department of State (DOS). In a memorandum to real estate brokers Alfred M. Fazio, Esq. with the law firm Capruder Fazio Giacoia, LLP stated: “The Real Estate Board of New York (REBNY) and the New York Association of Realtors (NYSAR), in conjunction with several major New York residential brokerage firms, are planning to file an Article 78 proceeding on Monday, February 10th, to stop enforcement of the guidance statement. It is their hope that a NYS Supreme Court Justice will issue a temporary order enjoining DOS from enforcing any provision of the Guidance Statement until such time that the Court can hear arguments on its legality as it pertains to The Tenant Act. Until such time that an injunction is issued, if it is in fact issued, licensees should adhere to the position that tenant paid fees can no longer be paid to brokerage firms acting as the agent of the landlord.” In an earlier article, “You Can’t Fight City Hall! You Can Try But You May Not Win,” we talked about Article 78 filings. On February 11th NYSAR reported, “As a result initiated by NYSAR, REBNY and others, a temporary restraining order was granted today. This order removes the prohibition against landlord’s agents collecting commissions from tenants the same way they did prior to last week’s DOS memo without fear of discipline by the DOS. Such practice may continue until further notice. NYSAR has a return date of March 13th to continue litigation of the DOS interpretation of the Housing Stability and Tenant Protection Act.”

Among the guidelines of greatest concern to the real estate brokers is the one that poses the question: “Can a landlord’s agent collect a ‘broker’s fee’ from the prospective tenant?” Before we provide the answer, some context might first be in order. The license law does not base representation on who pays the commission. The broker may represent the seller or buyer, landlord or tenant irrespective of which pays the commission. Representation is not based on who pays the commission. However, there is an exception to this rule. In Manhattan, Brooklyn, the Bronx, Queens, Staten Island, Nassau, Westchester, and Rockland Counties that have rent regulation laws that limit the amount of rent a landlord may charge, the tenant pays the commission. In fair market rentals, it is negotiable. By custom, the parties may treat short-term and long-term tenancies differently. So what is the answer to the posed question under the new DOS guidelines? “No. A landlord’s agent cannot be compensated by the prospective tenant for bringing about the meeting of the minds.” It goes on to say: “A landlord’s agent that collects a fee for bringing about the meeting of the minds between the landlord and tenant from the tenant can be subject to discipline.” If the broker is representing the tenant, then the tenant may pay the broker’s fee.

The guidelines also addressed issues related to residential co-ops and condominiums, not specifically broker fees. To be able to better address the issue, some points of clarification are necessary. A person who owns the shares in a residential co-op has a proprietary lease. They are tenant shareholders. If the bi-laws of the co-op permit, they may sublet the unit to a sub-tenant. If the tenant shareholder engages a real estate broker, can the broker charge a fee to the sub-tenant? In a residential condominium one may own the unit and bi-laws permitting, may lease the unit to a tenant. If the unit owner engages a real estate broker may the tenant pay the broker’s fee?

Alfred M. Fazio, Esq. of the New York Law firm, Capruder Fazio Giacoia includes in a published memorandum to real estate brokers: “The million dollar question is what happens if the firm [brokerage] is acting in a dual agency capacity and representing both the landlord and the tenant in the transaction…..and unfortunately we will need guidance from the DOS in order to provide you with an intelligent answer. Until further clarification and we do not know when that is going to occur, it would be safe to say to assume that if the firm has any agency relationship to the listing and the landlord, the tenant should not be paying a commission to the firm.”

In a notice to its members NYSAR says, in part: “This document is specifically limited to the actions and potential liability of a licensee by the DOS. It is not authoritative as to the new law and its applicability to landlords and should not be provided to or relied upon by any landlords, cooperative boards or condominium boards. This is only the position of the DOS as it applies to licensee disciplinary actions as initiated by the DOS.”

These are only some of the issues addressed in the DOS guidelines. Before proceeding with any activities that may be subject to the Tenant Protection Act or the DOS Guidelines should seek legal counsel.