NYSAR Urges Realtors Take Action Against DOS Guidance Barring Certain Commissions

John Jordan | February 2020

ALBANY—The New York real estate industry, particularly downstate, is reeling from guidance recently released by the Department of State that now among other changes regarding regulations on landlords and agents, prohibits a landlord’s agent from collecting a broker/fee commission from a tenant in residential rental transactions.

The guidance, part of a sweeping update released by the Department of State on Jan. 31, signifies a reversal of the long-standing practice where tenants pay the agent’s commission in New York City and elsewhere in New York State. A temporary restraining order was issued on the tenant commission guidance. Editor’s Note: See updated story on Real Estate In-Depth.com.

The Department of State published the updated document for all licensees titled “Guidance for Real Estate Professionals Concerning the Statewide Housing Security & Tenant Protection Act of 2019 and the Housing Stability and Tenant Protection Act of 2019.”

The New York State Association of Realtors urged its members to take action and contact Gov. Andrew Cuomo, Secretary of State Rosana Rosado and state lawmakers to voice their opposition to the Department of State’s new guidance on rental broker fees.

NYSAR in its e-mail blast stated that if enforced, the new guidance would have “devastating effects on Realtors engaging in rental transactions.”

“The most immediate effect of this new guidance is that it will void current agreements between brokers and landlords where the tenant pays the commission,” NYSAR states. “The Department’s guidance has now created uncertainty in the payment for services already provided by the broker. Additionally, if a landlord’s agent does collect a commission from the tenant, that licensee would be subject to discipline by the Department of State.”

NYSAR General Counsel S. Anthony Gatto, Esq, in his online “Legal Lines” column that addressed the DOS Guidance, listed the following issues of concern:

1. Licensees are Considered the Same as The Landlord if Acting as a Landlord’s Agent.

This restriction applies to licensed real estate brokers and salespeople acting as an agent of the “landlord, lessor, sub-lessor or grantor.”

2. Commissions

A landlord’s agent is prohibited from collecting the commission directly from the tenant. The commission must be paid to the landlord’s agent by the landlord. A tenant’s agent may be compensated by the listing broker or the tenant.

It should be noted that if a landlord’s agent does collect a commission from the tenant, that licensee may be subject to discipline by the DOS. Such discipline may include the return of the commission plus a fine and possible suspension/revocation of your license.

3. $20 Credit/Background Check

Licensees may only charge $20 per tenant that appear on the lease unless restricted by another agency.

NY RPL § 238-a(1)(b)A landlord, lessor, sub-lessor or grantor may charge a fee or fees to reimburse costs associated with conducting a background check and credit check, provided the cumulative fee or fees for such checks is no more than the actual cost of the background check and credit check or twenty dollars, whichever is less…

If a licensee is involved in a rental where the landlord charges more than $20, the licensee must advise the landlord and is prohibited from collecting more than $20.

“A licensed agent that collects a fee greater than $20.00 or fails to advise the landlord that such fees are prohibited may be subject to discipline by the Department pursuant to Section 441-c of the New York Real Property Law. Additionally, if a prohibited fee is collected and the property is subject to rent regulation, the tenant may also seek appropriate relief through HCR.”

If a tenant produces their own report, the fee must be waived

NY RPL § 238-a(1)(b) “…the landlord, lessor, sub-lessor or grantor shall waive the fee or fees if the potential tenant provides a copy of a background check or credit check conducted within the past thirty days.

Landlord/licensee may require the tenant to use a specific company if the cost is $20 or less. NYSAR recommends brokerages to create a list of companies that provide credit/background checks and have the proposed tenant choose from the list.

Landlord/licensee must provide a copy of the report to the tenant.

NY RPL § 238-a(1)(b) The landlord, lessor, sub-lessor or grantor may not collect the fee or fees unless the landlord, lessor, sub-lessor or grantor provides the potential tenant with a copy of the background check or credit check and the receipt or invoice from the entity conducting the background check or credit check.

Condominiums/Cooperatives

DOS will not discipline a license who collects a fee greater than $20.00 on behalf of a cooperative or condominium board when the board is not the owner of the rental apartment/unit. However, the DOS “cautions agents that the collection of such fees may nonetheless violate other laws, such as the prohibition against source of income discrimination.”

4. Advances on Rent

There are no advances for rentals including seasonal and college rentals.

Exempt if a housing subsidy is required to be in lump sum or by advance.

5. Additional Fees

Collection of pet deposits are prohibited. Unless otherwise prohibited by law or terms of a housing assistance program, a landlord may charge more rent to a tenant with pets.

GOL § 7-108(1-a)(a) No deposit or advance shall exceed the amount of one month’s rent under such contract.

In explaining what a security deposit can cover, DOS specifically cites:

GOL § 7-108(1-a)(b) non-payment of rent, damage caused by the tenant beyond normal wear and tear, non-payment of utility charges payable directly to the landlord under the terms of the lease or tenancy, and moving and storage of the tenant’s belongings. The landlord may not retain any amount of the deposit for costs relating to ordinary wear and tear of occupancy or damage caused by a prior tenant.

GOL § 7-108(1-a)(g) Any person who violates the provisions of this subdivision shall be liable for actual damages, provided a person found to have willfully violated this subdivision shall be liable for punitive damages of up to twice the amount of the deposit or advance.

Collection of other fees/expenses are also prohibited.

RPL § 238-a(1)(a) 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 paragraph (b) of this subdivision, provided that this subdivision shall not apply to entrance fees charged by continuing care retirement communities licensed pursuant to article forty-six or forty-six-A of the public health law, assisted living providers licensed pursuant to article forty-six-B of the public health law, adult care facilities licensed pursuant to article seven of the social services law, senior residential communities that have submitted an offering plan to the attorney general, or not-for-profit independent retirement communities that offer personal emergency response, housekeeping, transportation and meals to their residents.

6. Use of Prior Disputes

Licensees must not be involved in a transaction where the landlord refuses to rent to as potential tenant on the basis that the potential tenant was involved in a past or pending landlord-tenant action. However, if the tenant is subject to a money judgment, regardless of the subject matter of the matter, the landlord may take the outstanding judgment into consideration.

NY RPL § 227-f(1) No landlord of a residential premises shall refuse to rent or offer a lease to a potential tenant on the basis that the potential tenant was involved in a past or pending landlord-tenant action or summary proceeding under article seven of the real property actions and proceedings law. There shall be a rebuttable presumption that a person is in violation of this section if it is established that the person requested information from a tenant screening bureau relating to a potential tenant or otherwise inspected court records relating to a potential tenant and the person subsequently refuses to rent or offer a lease to the potential tenant.

NYSAR recommends that licensees not include landlord/tenant actions on background checks.

7. References

A licensee may ask for a list of references from a potential tenant. When contacting the references, the licensee must not question any of the references about past or pending landlord-tenant actions or summary proceedings.

RPL § 227-f(1) No landlord of a residential premises shall refuse to rent or offer a lease to a potential tenant on the basis that the potential tenant was involved in a past or pending landlord-tenant action or summary proceeding under article seven of the real property actions and proceedings law. There shall be a rebuttable presumption that a person is in violation of this section if it is established that the person requested information from a tenant screening bureau relating to a potential tenant or otherwise inspected court records relating to a potential tenant and the person subsequently refuses to rent or offer a lease to the potential tenant.

8. Late Fees

Late fees can only be charged after five full days have passed.

Late fees can only be 5% of the rent of $50 whichever is less.

Leases signed prior to 7/14/2019 must comply with new late fee limits.

NY RPL § 238-a(2) landlord, lessor, sub-lessor or grantor may demand any payment, fee, or charge for the late payment of rent unless the payment of rent has not been made within five days of the date it was due, and such payment, fee, or charge shall not exceed fifty dollars or five percent of the monthly rent, whichever is less.

9. Security Deposits

Must be the amount of one month’s rent or less.

GOL § 7-108(1-a)(a) No deposit or advance shall exceed the amount of one month’s rent under such contract.

Must be returned within 14 days after the tenant vacates the premises.

If the full amount is not being returned, an itemized statement must be provided to the tenant within the 14-day period listing all charges deducted from the security deposit.

Failure to return the security deposit within 14 days forfeits any right the landlord may have to the security deposit.

GOL § 7-108(1-a)(e) Within fourteen days after the tenant has vacated the premises, the landlord shall provide the tenant with an itemized statement indicating the basis for the amount of the deposit retained, if any, and shall return any remaining portion of the deposit to the tenant. If a landlord fails to provide the tenant with the statement and deposit within fourteen days, the landlord shall forfeit any right to retain any portion of the deposit.

If the lease was signed before 7/14/2019 and the security deposit held by the broker is greater than one month’s rent, the broker will not be disciplined by the DOS and will not be required to return the difference to the tenant.

If the 14th day falls on a Saturday, Sunday or holiday, the broker must return the security deposit on the next business day.

10. Not Applicable to Commercial Transactions

According to DOS, “The Acts do not impose any new requirements relating to commercial transactions.”

John Jordan
Editor, Real Estate In-Depth