Illegal broker fees could cost NYC real estate agents and landlords $2K per violation

New York City’s consumer protection agency is putting some force behind an upcoming ban on most residential broker fees, with a plan to fine offenders up to $2,000 per violation.

The Department of Consumer and Worker Protection released a list of proposed penalties last week for enforcing the Fairness in Apartment Rental Expenses Act, which is meant to eliminate the hefty upfront fees for prospective tenants. The measure is supposed to take effect in mid-June, though its implementation could face delays while the city’s powerful real estate lobby fights the 2024 city law in federal court.

Under the proposal, landlords and brokers would face a $750 fine if they are caught charging a tenant who didn’t explicitly hire the broker to represent them. The city would then fine them $1,800 for a second offense and $2,000 for any subsequent violation.

The consumer protection agency is also proposing a $750 fine for brokers who fail “to disclose in residential rental listing all fees to be paid by tenant in a clear and conspicuous manner” and a $375 fine for failing to provide tenants with an itemized list of fees. The maximum fine was specified in the legislation approved by the City Council last year.

City Councilmember Chi Ossé of Brooklyn, the law’s main sponsor, praised the plan and noted that brokers and landlords who violate the rules would also have to return the fees to renters.

“The fines imposed by the law are reasonable and can be easily avoided by never charging a tenant for a broker they did not hire,” he said in a written statement.

Broker fees are a uniquely New York City arrangement where real estate agents working on behalf of a landlord or property owner charge an upfront fee that tenants must pay on top of their rent and security deposit. The one-time fees typically range from the equivalent of a month’s rent to 15% of the yearly total — $5,400 for a $3,000-a-month apartment, for example.

Real estate broker Anna Klenkar championed the legislation — a rare stance among her industry peers — and said the fines should be enough to discourage most illegal fees.

“For a lot of people, not wanting to break the law and then having fines will be significant,” she said.

Klenkar said she hoped the consumer protection office will also identify patterns of violations by agents from specific brokerages.

The consumer agency will hold a public hearing on the proposal on May 14 before finalizing the penalties.

Even so, the broker-fee ban isn’t set in stone just yet.

The Real Estate Board of New York and a group of brokerages sued to block the law in December, just days after the Council passed it with an overwhelming majority. REBNY represents brokers, who pay annual dues to the organization, and led the opposition to the ban. The organization successfully sued in 2020 to overturn a directive from New York’s Department of State that would have eliminated broker fees.

REBNY spokesperson Christopher Santarelli declined to comment on the proposed penalties, saying it would be “premature when the constitutionality of the law is being reviewed in federal court.”

Mayor Eric Adams has expressed skepticism over the legislation and refused to sign it, instead letting it lapse into law last year. But the city’s attorneys are defending the measure in court.

The law recently gained a powerful supporter: Gov. Kathy Hochul.

“The courts should rule in favor of the city. And these broker fees? They should end forever,” she said in a video posted on social media earlier this month.