NYC real estate brokers are already exploiting a perceived loophole in new rent laws

In what appears to be one of the first possible loopholes in the new rent laws, some New York City real estate brokers ignored a rule that prohibits landlords from charging more than $20 for checks. history or credit.

The specific law, which went into effect on June 15, states that “an owner, lessor, sub-lessor or licensor” may charge fees associated with background checks and credit checks of a amount of $20, or “whichever is less”.

Carl Hum, general counsel for the Real Estate Board of New York, the industry’s lobbying arm, told Gothamist that the law contains a gray area. “There is no mention of brokers,” he said. “Because the law does not specifically mention brokers, and because brokers do this job of preparing applications, they could possibly charge in addition to [the $20] for the work they do. »

He said the ambiguity “comes from the fact that the law was drafted in a matter of days without a hearing,” he said, adding that such a hasty legislative process serves neither brokers nor tenants.

Ultimate interpretation rests with the Department of State, which licenses and oversees real estate brokers. A department spokesperson told Gothamist on Tuesday that it was reviewing the matter and did not respond to a follow-up inquiry.

In the meantime, Hum said, “That’s an area of ​​debate.”

However, Ellen Davidson, a lawyer at the Legal Aid Society, disagreed.

“They are clearly acting as agents for the owners,” she said. “They put themselves in the shoes of the owners and must respect the law.”

Davidson said she expects the law to eventually be clarified by the state and also by the courts in the event of a lawsuit.

Two state officials, who worked on the legislation, told The City that the real estate industry was blatantly flouting the new rule. “The intent of the law is that the application fee should not exceed $20 to protect people from excessive charges. It’s a plain reading of that that makes the intent pretty clear,” State Senator Zellnor Myrie told the news website.

One of the problems with applying the law only to landlords and those with real estate interests is that brokers are involved in the bulk of real estate transactions in New York. This, coupled with the often fierce competition for apartments, leaves tenants feeling they have little leverage over brokers, who are essentially gatekeepers to the market. The city council is currently considering legislation that would rule over brokerage fees, which has drawn strong opposition from the real estate industry. Among other measures, the proposal would limit brokerage fees to one month’s rent.

Council member Keith Powers, one of the sponsors of the bills, said he was reviewing comments from those who testified at the June public hearing and looked forward to continuing the legislative process. in the fall” to deal with the high initial costs in the leasing process.

Davidson said she’s a little surprised the real estate industry is reacting in this way to new rent laws in light of the City Council’s proposed legislation, which specifically addresses the upfront cost burden tenants face.

Several tenants who applied for apartments after June 15 told Gothamist they paid application fees well over $20. All had gone through brokerage firms.

A tenant, who asked that his name not be used for privacy reasons, said he signed a lease last month for a two-bedroom apartment in Crown Heights in which he and his roommate paid Compass, the one of the largest brokerage firms in town, $80 each. in filing fees. He sent Gothamist a copy of the blank application showing the fee in fine print.

He said he was unaware of the law at the time and only learned about it later from a friend.

Throughout his search, he said he had not come across any apartments involving direct rental from a landlord. His apartment, located in a two-family house, rents for $2,400 per month. “I didn’t even think that was something you could do,” the Michigan native said. “The idea of ​​using a broker seemed so ingrained in how the market works.”

Devin Daly, a spokesperson for Compass, initially said the application form was “outdated”. He then released the following statement: “As Compass is not a landlord and on the advice of REBNY, Compass is authorized to charge a reasonable application fee as we are a third party and must always cover the cost of our account service providing credit/background check amount does not exceed $20.”

Another tenant, Tanner, who asked that his last name be withheld, said he and his roommate were aware of the new law but still opted to pay $150 per person for the processing fees charged by Dynamik Real Estate Group. He provided Gothamist with a screenshot of his receipt, which came in at $155.25. The extra $5.25 they each paid was a convenience fee, he said.

He said they feared there was strong interest in the two-bedroom apartment, which is located in Midtown East and has rents of less than $3,300 per month. So they decided not to take any risks.

“We said fuck it, we’re not going to discuss it,” he said.

Dynamik did not immediately respond to an interview request.

Asked how he advised members on the policy, Jamie McShane, a spokesperson for REBNY, pointed out that the organization holds ongoing education sessions on the new rent laws.

As for what REBNY says to brokers who ask if the $20 fee limit applies to them, he replied, “Talk to your lawyer.”

UPDATE: The story has been updated to include a new statement from Compass.

Kristan F. Talley