Are Broker Fees Legal in NYC?
Long viewed as a financial hurdle to renting an apartment in New York City, over the last year or so, Broker fees in New York City have been a hot topic for both housing advocates and real estate brokers. Specifically, after the state passed the Housing Stability and Tenant Protection Act of 2019 (HSTPA), most broker fees became illegal for renters. Specifically, real estate agents in New York City were not allowed to collect their fees from tenants if they worked for the landlord to rent the apartment. This was undoubtedly a massive blow to real estate brokers as the standard broker’s fee in New York City is commonly 15% of the annual rent. Specifically, that means that if your rent is $2,000 per month or $24,000 per year, a broker could charge you $3,600 to find you an apartment. Many housing advocates found this to be a win for affordable housing in New York City.
However, on May 25, 2021, New York State clarified that the HSTPA of 2019 does not disallow brokers from collecting their fees from prospective tenants. However, keep in mind that the HSTPA limits still apply to application fees, credit check fees, background checks, and other fees conditional upon entering into a new lease agreement with the landlord. Real estate agents viewed this as a win as their income is now protected, at least temporarily. Still, many housing advocates are hoping that the state legislature will explicitly ban broker fees in the future, or at the very least, place provisions on how much a broker can charge a prospective tenant when finding them an apartment.
Security Deposits
Before the passing of the HSTPA, landlords and brokers were allowed to collect as much security deposit as they wanted. However, with the passing of the new law, landlords are restricted to only collect one month’s rent and security deposit. Additionally, landlords are not allowed to collect additional security deposits for move-in expenses or pet deposits.
Specifically, the new law clarified the amount of time a landlord has to return a tenant security deposit when they moved out. Prior to the passing of the new law, landlords were allowed to return the security deposit within a “reasonable amount of time.” This was commonly interpreted to mean one or two months. However, the HSTPA clarified that the landlord only has 14 days to return a tenant security deposit. Now, if the landlord plans to retain any amount of a tenant’s security deposit, it must provide (i) an itemized statement of the claimed conditions within 14 days after the tenant vacates and (ii) any remaining portion of the deposit. A landlord that fails to comply forfeits any claim to the deposit. If the landlord does not return a tenant security deposit within 14 days and also does not provide the tenant with an explanation of why the deposit is currently being held, the landlord forfeits any right to retain the security deposit. If the last day or day 14 falls on a Saturday, Sunday, or Holiday, the landlord may return the security deposit on the next business day. Additionally, a landlord may be penalized up to double the amount of the security deposit, known as punitive damages, if the landlord does not follow the proper procedures regarding a tenant’s security deposit.
Practically, this means that landlords must act quickly. They must inspect an apartment as soon as a tenant vacates to determine if they can legally withhold the tenant’s security deposit.
Moreover, landlords are prohibited from collecting first and last month’s rent from tenants, otherwise known as “pre-paid rent” or “advance rent,” which was a common practice in New York City before the HSTPA passed in 2019. This was particularly used with tenants who had bad credit or low income.
Lastly, the HSTPA clarifies what fees and expenses can be withheld from a tenant’s security deposit. Specifically, reasonable costs related to non-payment of rent or utility charges may be deducted from the tenant’s security deposit. Also, any property damage because of ordinary wear and tear may also be deducted. Generally speaking, landlords have the burden of proving that they have legally retained a tenant’s security deposit.
Some landlords have been asking guarantors to pay additional security deposits to get around some of these measures. DHCR has issued guidance prohibiting this practice as it pertains to rent-stabilized apartments. However, the verdict is still out about whether it applies to free-market apartments as well.
Rent Increases
While rent increases For rent-controlled or rent-stabilized apartments have always been controlled by the New York City Rent Guideline Board, the HSTPA added additional provisions as it pertains to rental increases for free-market apartments. Specifically, landlords who are offering lease renewals in free-market apartment space are now required to give tenants notice if they plan to increase rent by more than 5%. Specifically, If a tenant resides in the apartment for less than one year or has a lease agreement for less than one year (this includes month-to-month tenants, the landlord is required to give the tenant 30 days’ notice if any rent increase higher than 5%. For tenants who have resided in the apartment for more than one year but less than two years or have a lease agreement for at least one year, the landlord is required to send the tenant a 60-day notice. Lastly, for tenants who have resided in the apartment for more than two years or have a lease agreement for at least two years, the tenant is required to receive a 90-day notice of any rental increase that exceeds 5%. Despite the foregoing, landlords are still not required to offer lease renewals to free-market tenants in New York City. Also, landlords are still permitted to increase the rent to whatever percentage they want, as long as proper notice is given to the tenant.
Eviction
There are several changes to the summary eviction process in New York City as a result of the HSTPA of 2019. Notably, most if not all of these changes benefit tenants and apply to all types of tenants, not just rent-regulated ones.
Notice Requirements
Prior to the change in law, a petition for eviction had to be served 5 to 12 days before the next first court appearance. However, pursuant to the new law, tenants must be served 10 to 17 days before the initial court appearance. Additionally, tenants in holdover eviction proceedings are not required to file an Answer three days before the first court appearance if the position was served eight days before the return date.
As it pertains to non-payment proceedings, the time a written notice required was expanded. Specifically, landlords usually had to give a 3-day notice to pay rent. However, under the new law, this time has been expanded to a 14-day rent demand notice. Additionally, the new law added an additional provision that tenants must be notified if their rent was not received within 5 days of it being due. If the landlord does not serve what is commonly referred to as a “pre-rent demand notice,” the tenant may use this as an affirmative defense to get the non-payment proceeding dismissed by the Court.
Additionally, tenants now have 10 days to answer a non-payment proceeding. The time used to be 5 days. And assuming a tenant defaults in answering the non-payment proceeding, the new law gives the judge discretion to stay issuing a warrant for up to five days. Practically speaking, this new law has expanded this time from a couple days to three weeks when a petition for non-payment of rent can be filed and served.
Keep in mind that these new provisions do not apply to commercial landlords.
Court proceedings
A landlord cannot request that a deposit be made by a tenant prior to 60 days of the case being on the calendar. Also, there must not be any delay attributable to the landlord. The first adjournment requested by the tenant does not count against them if they are not represented by counsel.
Furthermore, in the event that a tenant does not comply with an order directing them to make a rent deposit, the penalties have been reduced significantly. The Court used to be able to order a monetary or possessory judgment against the tenant or even strike the tenant’s defenses. However, this is no longer the case. The Court may now extend the tenant’s time to pay the deposit for “good cause.” The Court may also refer the matter for an immediate trial. Immediate means that the Court won’t grant any further adjournments at the tenant’s request, and the matter will be sent to a trial part at the soonest possible date.
Discretion to Stay an Eviction
Prior to the passing of the new law, the Court had the discretion to stay an eviction for 30 days. However, now the Court may stay an eviction for up to one year. When decided whether to stay an eviction, the Court is authorized to consider several factors, including but not limited to the family’s ability to relocate and enjoy a similar quality of life, health factors, a child’s school situation, and any other extenuating circumstance that the court feels it should consider.
Application Fees
The HSTPA reshaped application fees or other associated fees that are collected in New York City. Specifically, application fees could easily add up to hundreds of dollars before the new law was implemented. Housing advocates viewed these costly application fees as a huge hurdle to affordable housing in New York City. However, thanks to the HSTPA, the cumulative total of all application fees must be less than $20. Specifically, this $20 cap includes incidental fees, credit check fees, background checks, and move-in fees. This cap applies to both free-market, and rent-regulated apartments, as well as coop and condo apartments, sublet or rented by the owner or shareholder.
Rent Controlled and Rent Stabilized Apartment Laws
In addition to the foregoing changes in the New York City rental laws, one of the biggest changes is that rent-regulated housing is now permanent in New York City. It used to be that landlords could take apartments out of rent regulation when the rent amount exceeded a certain threshold; however, this is no longer the case. Instead, once an apartment is rent-stabilized under New York Law, it will remain that way forever, no matter how much the rent increases. This is, of course, assuming that a new law is not passed to overturn this provision.,
Another thing that renters should know is that preferential rents are permanent as well. Specifically, this means that if a landlord was charging a tenant a rent amount below the legal regulated rent amount (i.e., the maximum amount a landlord was permitted to charge a tenant according to the law), that lower amount is now permanent and will be used to determine any future rent increases, etc.