Brokers’ fees are unsettled as industry groups challenge state

On Behalf of | Oct 21, 2020 | Real Estate Disputes, Real Estate Transactions

According to the New York Times, real estate industry groups are challenging a New York Department of State decision that impacts fees payable to brokers for apartment leases. 

New York City brokers have historically managed many aspects of the residential leasing market. Agents handle listings, appointments and leases. For this work, they have collected fees from tenants. These fees may equal up to 15% of one year’s rent. 

The DOS imposes restrictions on commissions

The DOS issued guidelines to prevent landlords from collecting brokers’ commissions from residential tenants. The DOS asserted it has authority to make this rule based on its interpretation of leasing reform laws adopted in 2019. 

Industry groups representing real estate professionals sued the DOS, claiming abuse of authority. The lawsuit argues that the department did not follow proper procedures and should have solicited comments from the real estate industry before implementing the rule. 

The practical consequences remain uncertain

Brokers argue that this rule will adversely affect the income they can earn. The DOS counters that its ruling does not prevent real estate agents from collecting fees. Rather, landlords must pay any fee unless the tenant engaged the broker to help find an apartment. 

According to Curbed, the DOS has warned that a landlord’s agent who collects a broker’s fee from a tenant may face disciplinary action. Discipline could be in the form of suspensions, fines or license revocation. 

A judge has issued a ruling temporarily suspending the new regulation, and a hearing is pending. While the lawsuit is outstanding, tenants must continue to pay commissions. 

If a court upholds the DOS guidance, some believe that landlords who own properties that are not rent-regulated may pass brokers’ fees onto tenants in the form of rent.