Since the passage of The Housing Security and Tenant Protection Act of 2019 (The Act) which was signed into law in June of this year, there have been countless questions raised by real estate licensees with few answers to those questions. No responsible professional has been willing to venture a guess as to the applicability of the statute for fear of providing incorrect information that would lead to possible revocation or suspension of a license and/or the imposition of monetary fines. The NYS Department of State (DOS) recently issued a memorandum of guidance on how it will view The Act in relation to real estate licensee in this State and it is welcome information.
Understandably, the DOS is taking a strict construction approach to The Act as it refers to real estate agents working on behalf of “a landlord, lessor, sub-lessor or grantor.” If you accept a listing on behalf of a landlord, whether that listing is open or exclusive, you are working as an agent on behalf of that landlord and these rules apply to you and your fee for a background check or credit report is limited to $20.00. The collection of any additional fee in excess of the $20.00 would be in violation of The Act and subject to discipline by the DOS. The memorandum, a copy of which is attached, also directs the agent working on behalf of the landlord to inform the landlord (preferably in writing) that he or she is in violation of the Act when an application fee in excess of $20.00 is being charged to the potential tenant. This is an affirmative obligation on the part of the agent and I would even suggest that the agent forward a similar written notice to the tenant that The Act does not permit the imposition of a fee greater than $20.00. If the landlord chooses to charge a fee knowing it is improper and the tenant chooses to move forward with the rental agreeing to pay the additional fee, the agent acting on behalf of the landlord has written proof that proper notice was sent to all parties in that transaction. The memorandum does not indicate that the agent has an obligation to withdraw from the listing if the landlord is overcharging the tenant so written notification should be sufficient for the time being unless directed otherwise by the DOS in the future. The tenant does have the option to subsequently file a complaint with the proper authorities seeking a refund from the landlord but at least the agent can prove that appropriate notice of overcharge was given to all the parties.
The DOS has specifically exempted three specific instances where the $20 application fee restriction would not apply:
1. When a property is being sold including Coops and Condos
2. Application fees imposed by Coop/Condo Boards (other than the unit owner) and
3. When the agent has been formally engaged to represent the interests of the tenant.
It is the third category which warrants further discussion. Licensees need to be aware of the impact of dual agency on this exemption. As mentioned earlier in this newsletter, a firm that has a rental listing, whether open or exclusive, represents the landlord and is therefore a landlord’s agent; therefore, if the firm is acting as a tenant’s agent and shows that same tenant a listing which it holds, the firm is acting in a dual agency capacity and in my opinion, would limit the firm’s ability to charge an application fee to no more than $20.00. If the firm can prove that it is acting as the tenant’s agent (the agency disclosure form should be sufficient to support this position) and does not hold the listing for the unit, the $20.00 limitation on application fees should not apply. Since The Act became effective in NYS, the one question I have been asked more than any other is the applicability of the application fee restriction on a tenant’s agent; the DOS seems to have answered that question in its recent memorandum. Notwithstanding same, a firm has to decide how to best implement the provisions of the Act in its rental policies keeping in mind that the legislature is trying to protect the interests of prospective tenants when dealing with application fees, brokerage commissions, large security deposits and first and last months’ rent. Undoubtedly the New York State Association of Realtors and the Real Estate Board of New York will be commenting on the recent DOS memorandum so until such time that further guidance is offered, please direct yourself accordingly and proceed with caution.
Alfred M. Fazio, Esq.
Capuder Fazio Giacoia LLP
90 Broad Street
New York, N.Y. 10004-2627 212-509-9595