Client Advisory: Tenants Can No Longer Be Required to Pay a Landlord’s Brokerage Fee

Dear Clients,

Please be advised that on February 5, 2020, the Department of State announced that landlords can no longer require tenants to pay brokerage fees to a broker/agent representing the landlord.  You can find the Department’s statement here.

Please note that this only applies to a broker/agent representing the landlord. If the broker/agent represents the tenant, and has a representation agreement that sets out a brokerage fee to be paid by the tenant, then the broker/agent can be paid by its tenant client.  Similarly, the landlord can pay the landlord’s agent, and, if the landlord wishes, the tenant’s agent as well. But the landlord’s broker/agent CANNOT be paid by the tenant.

The Department did not make clear whether this new rule applies to leases that were agreed to prior to February 5th, 2020.  Other parts of the Department’s statement do indicate that the Department’s new interpretation is not intended to apply to existing leases. Thus, we are interpreting it to apply to leases signed as of today, February 6, 2020, the first business day after the announcement was made. We will advise you if we get contrary guidance from the state.

Accordingly, as of February 6, 2020:

Landlords:  if you are a landlord, you need to pay the brokerage fee to your own agent. You can also pay the tenant’s agent if you wish, although you do not need to.  But you cannot compel the tenant to pay your landlord’s agent. Essentially, if you want to list your property for rent, you need to at least compensate your own agent. You should also consider compensating a tenant’s agent, the way sellers do in residential sales, in order to incentivize them to bring you a tenant.  You can always build the cost of the compensation into your monthly rent.

Tenants: if you are a tenant, you do not have to pay a brokerage fee to a broker representing the landlord. You might still need to pay your own tenant’s agent, if you have one, pursuant to a separate agreement. If you’re working with a tenant’s agent, that agent deserves to be paid for their work.

Please note that if you have an existing agreement in principle to lease a property that requires the tenant to pay a brokerage fee to the landlord’s agent, but that agreement is not yet signed, then that agreement must be modified to comply with this new interpretation in the law.  The landlord needs to pay its own broker.  That might mean, of course, that the landlord might require an adjustment of the monthly rent due over the course of the lease.

We hope you find this helpful. If you have questions, please reach out through your Rand Realty agent.

NOTE:  I am an attorney, but I am not your attorney. I represent Better Homes and Gardens Real Estate |Rand  Realty.  If you would like to discuss the matter discussed here with an attorney, you should do so. 

 

Posted on February 6, 2020 at 6:55 pm
Joseph Rand | Category: Client Advisory, Landlord-Tenant Law, Law | Tagged , , , ,

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