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.
Agent Advisory: Understanding the New Guidance from the Department of State about Agent Obligations Under the New Landlord-Tenant Laws
On February 5th, the Department of State put out an advisory providing guidance on agent responsibilities under the Housing Stability and Tenant Protection Act of 2019.
That legislation was a far-reaching and progressive set of changes to the landlord-tenant relationship, providing significant new protections to tenants, including the following:
- Landlords cannot refuse to rent to someone based on their lawful source of income, or because that tenant was involved in a past or pending landlord-tenant action.
- Landlords cannot charge an application fee, or more than a $20 for a background/credit check.
- Landlords must give the tenant the opportunity to inspect the premises prior to occupancy, and execute a written agreement describing the condition of the premises.
- Landlords cannot require more than an amount equal to one month’s rent as an upfront payment to cover all deposits and fees.
- Landlords cannot require tenant’s to pay any part of the brokerage fee due the landlord’s agent.
- Landlords must inspect the premises prior to termination of the lease and notify the tenant of any repairs or cleaning that must be done, and can only keep a part of the security deposit if they provide an itemized statement explaining why.
- Landlords can only charge late payment fees if a rent payment is more than 5 days late, and can only charge 5% of the monthly rent, capped at $50.
- Landlords must give tenants between 30-90 days’ notice prior to lease expiration of their intent not to renew or to raise the rent by more than 5%.
- If the tenant breaches the lease, Landlords must act in good faith to mitigate the damages by finding a new tenant as soon as possible.
- Landlords have significant restrictions on their rights to evict tenants – we’re not going to review them here except to say that landlords should consult with an attorney about any attempt to effect an eviction.
Agents should be familiar with these new laws, because landlords might not be, and you will need to guide them so that they don’t inadvertently break the law.
Moreover, agents also need to be aware that the Department of State has put affirmative obligations on them to help landlords comply with the new laws.
The DOS guidance is a little dis-organized and confusing, though, so we’ve tried to make sense of it for you. Essentially, in all these cases, you must advise the landlord to comply with the law, and cannot be a part of any non-compliance regarding the following obligations:
- Brokerage Fees for the Landlord’s Agent Cannot be Paid by Tenant
If you represent the landlord, the landlord has to pay your fee. The landlord cannot compel the tenant to pay any part of the fee.
- Brokerage Fees for the Tenant’s Agent Can be Paid by Landlord, Listing Broker, or Tenant
If you represent the tenant, you can get paid in these ways:
- your tenant can pay your fee pursuant to a separate representation agreement.
- the landlord (or listing broker) can pay your fee pursuant to a standard offer of compensation in MLS.
- the landlord can pay your fee, even if no offer of compensation was made in MLS, if the tenant requires the landlord to pay your fee as a condition of the lease.
- One Month Rent Cap on Upfront/Advance Fees or Rent.
You cannot be party to a landlord charging more than a month’s worth of rent in upfront fees to cover a security deposit, advance rent, pet deposits, or the like. Essentially, this allows a landlord to require a tenant to pay one full month’s rent as a security deposit, and that’s it. No pet deposits, no “last month’s rent,” no broker’s fee, nothing. This includes short-term rentals, which sometimes require pre-paid rent for a full term – that is no longer allowed, because under no circumstances can a landlord require a tenant to pre-pay anything more than one month’s worth of rent.
- Application Fee.
You cannot be party to a landlord charging more than $20 for an application fee to cover a background/credit check. Moreover, if the potential tenant provides a copy of a background check or credit check conducted within the past 30 days, the landlord has to waive any application fee.
Note that DOS has carved out some further guidance on this:
- condo and coop boards can charge a separate application fee, so long as they don’t own the unit being rented (or pay the money to the landlord in any way).
- if there are multiple individuals who are taking on the tenancy, brokers and landlords can charge a $20 fee (if otherwise allowed) from each of the individual tenants.
- if you collect a fee, you have to provide the tenant with a copy of any background or credit check.
- you can require the tenant to use a specific company to get the background or credit check, so long as you otherwise comply with the $20 limitation and fee waiver if the tenant has a credit or background check from the last 30 days.
- the $20 rule applies to subletting tenants (i.e., sublandlords) the same way it applies to landlords.
- Prior Disputes.
You cannot allow a landlord to refuse to rent or offer a lease to a potential tenant because that tenant was previously involved in a dispute with a landlord. You can still ask a tenant for references, but you cannot ask the references whether the tenant has any past or pending landlord-tenant actions.
- Late Rent Fees.
You cannot allow a landlord to charge a tenant more than 5% of the monthly rent (capped at $50) as a late fee, which can only be charged if the rent is more than five days late.
- Security Deposit Return.
You cannot be party to a landlord holding a security deposit without complying with the new requirements of notice and itemization of damages.
We hope you find this helpful. We will be updating this Advisory if we get more guidance, or find that it needs some clarification.