[UPDATE] Broker Fees Are Now Illegal—Here's How To Claw Yours Back

For most New Yorkers, this week's news that renters no longer have to pay broker fees was cause for shock and celebration. Through a legal clarification of last summer's rent reforms, the Department of State effectively abolished one of the most reviled aspects of apartment hunting: an arrangement, basically unique to NYC, in which landlord-hired middle-men can charge exorbitant upfront costs to prospective tenants.

But for some newly-settled renters, the bombshell revelation brought a combination of remorse, anger, and confusion. What if you'd recently moved into apartment, forking over thousands of dollars in fees that should have been illegal under legislation passed in June? Should you kiss that money goodbye for good? Or is there some course of action?

The updated legal guidance does not specify one way or another. According to housing attorneys and elected officials, however, New York residents who paid a broker fee after June 14th — when this provision of the new rent laws went into effect — should be eligible for reimbursement. [Scroll down for an update].

"They’re interpreting a law, they’re not making rules," said Ellen Davidson, a staff attorney with the Legal Aid Society, of the new guidance. "This interpretation is good as of when the law went into effect."

Of course, just because you're owed money, doesn't mean you're going to get it. Anyone who's ever haggled over a security deposit knows that the realities of NYC real estate are not governed by a great deal of fairness, and there are no easy victories. But the law appears to be on your side, and it's certainly worth trying. Below, some advice from experts on how to claw back your broker fee.

(The opinion herein does not constitute legal advice, which may only be given in the context of a lawyer-client relationship; Additionally, the following does not apply to anyone who paid a broker fee before June 14th. Sorry.)

Ask Nicely — Then Go To Court

The first thing you'll want to do is politely ask both your broker and landlord if they're aware of the new state interpretation on fees. Be polite about it. Maybe they're just learning about this now and will immediately offer to rectify the problem once you explain the situation. Stranger things have happened, probably.

But if that doesn't work, your best bet may be taking both parties to small claims court. "It’s a pretty straightforward case," Davidson, the Legal Aid attorney, told Gothamist. "[The tenant] would show they paid the money. They would show the guidance saying they ought not to pay the money. It should be relatively easy to pursue."

While hiring an attorney would likely exceed the cost of the initial broker fee, NYC Small Claims Court is the sort of place where litigants often represent themselves, according to Davidson. You can find your nearest small claims court here, and will have to show up in person to begin the process.

Mike McKee, one of the lead tenant organizers who worked on the new rent law, advises residents not to take this step until they are safely settled in their apartments — lest the landlord retaliate. He concedes that trying to get those fees back without going to court may be a losing game.

“It might very well be that people have to sue," McKee said, adding: “This is a cozy little operation that landlord and brokers have had for years and years. It's high time it ended. This is what the drafters intended."

Complain To The State

Of course, there are myriad reasons why tenants may be hesitant to sue their landlords. One Brooklyn resident tells Gothamist he moved into a dream apartment in Williamsburg with the help of a broker just two weeks ago. Despite paying a nearly $3,000 broker fee, his roommates have agreed that "it’s just too risky to rock the boat on what is a great new apartment."

A slightly less drastic option is to file a complaint against the broker through the state's division of licensing services. Brokers are a state licensed position, “so if they violate the law, their license could be in danger," said McKee.

Those forms are all reviewed by investigators with the NY Department of State, which will then determine if the brokerage violated the law. Note that your broker will be made aware that you filed a complaint against them; some New Yorkers are apparently being told by operators to reach out to their brokers before filing the complaint, which seems like good advice.

The office's press department has not responded to any of Gothamist's inquiries. But an employee who answered the licensing hotline on Wednesday morning said they'd received numerous complaints from tenants seeking to be repaid for broker fees paid after the rent laws took effect.

"If you were charged any amount of money, then you should file a complaint," the state employee said.

Those forms can be submitted through email or snail mail — more info here.

Subtract It From Your Rent

If all else fails, it may be worth considering the possibility of withholding the equivalent of the broker fee from your monthly rent (conveniently, two figures that are often the same amount). To be clear, we are not suggesting you should do this. We're are simply saying that some lawmakers believe it's a good idea.

"If I were a tenant who had paid a brokers fee after June 2019 then I would directly contact my landlord and say 'Hey, the law said that you can’t charge me a brokers fee, so I’m going to apply that toward my future rent balance,'" State Senator Julia Salazar told Gothamist on Thursday. "Or I would wait until the end of the lease and would tell them 'I’m deducting [broker’s fee amount] of final month’s rent since the law said you needed to cover it instead of the tenant.'"

Salazar continued: "The landlord would likely cave instead of withholding the returned security deposit since the law about promptly returning security deposits was also clarified and reinforced in the [The Housing Stability and Tenant Protection Act of 2019]."

The counterpoint here is that, even with the new protections in place, the average landlord still wields way more power than their tenants, and they don't typically respond well to the ones that refuse to make rent. Davidson notes that withholding rent is potentially "complicated," and urges any New Yorker to consult an attorney before taking this step.

Finally, it is worth noting that the fall-out from Wednesday's broker fee news is still very much uncertain. The real estate lobby has already vowed legal action to ensure the status quo remains unchanged. Brokerages, of course, have every incentive to block tenants from recouping their fees. As it stands, they sound quite concerned.

"The general reaction to this is shock, at first. Then worry," Bill Kowalczuk, a broker with Warburg Realty, told Gothamist. "If tenants try to apply this retroactively — i.e. refusing to pay broker fees that were applied after the new rent laws went into effect — that would be a huge problem."

UPDATE 6:00 p.m. 2/6/20: The Department of State believes that the ban on broker fees should apply as of January 31st, 2020, and not when the legislation was passed, according to the Times. “This is not intended to apply retroactively and future transactions should be entered into with this guidance in mind," spokesperson Erin McCarthy told the outlet in a statement.

But multiple housing attorneys say the state agency does not have the power to make that decision.

"They can’t say the law goes into effect later than when the legislature says it does," said Judith Goldiner, an attorney with the Legal Aid Society, in response to the state's comments. "They're not the ones making law."

“I don’t see how that can be correct," echoed Mike McKee, a tenant leader who helped lobby for the rent laws.

Goldiner added that the issue will likely be decided before a judge, possibly in the form of a class action lawsuit.

A spokesperson for the Real Estate Board of New York, the lobbying arm for the city's real estate industry, confirmed that they've been in touch with the Department of State, but declined to comment on the matter further.

Additional reporting by Liz Kim.