Court Rules HSTPA Doesn't Prohibit Broker's Fees

REBNY and the NY State Ass'n of Realtors sued the NY State Dept. of State (DOS) after state regulators issued guidance on Jan. 31, 2020, which suggested that, under HSTPA, it was illegal for prospective renters to pay a broker if that broker was acting on behalf of a landlord. The DOS cited Real Property Law Section 238-a(1)(a), which states that "no landlord, lessor, sub-lessor or grantor may demand any payment, fee, or charge for the processing, review or acceptance of an application, or demand any other payment, fee, or charge before or at the beginning of tenancy, except background checks and credit checks[.]" The DOS interpreted this language to mean than an owner's broker couldn't collect a broker's fee from a prospective tenant, and could be subject to discipline if it did so.

The court granted the plaintiffs a temporary restraining order in 2020 and, in April 2021, ruled against the DOS guidance and found that HSTPA doesn't allow the DOS to prohibit brokers from collecting fees from renters. The court stated that, "The prohibition was intended to apply to application fees, background check fees, credit check fees, and any other fees that imposed a pre-condition to negotiations for entry into a lease agreement" and that, "No reference is made to 'broker's commission' in the statute." The court called the DOS guidance issued in 2020 an "error" and an "abuse of discretion."

Real Estate Board of New York v. New York State Dept. of State: Index No. 901586/20 (Sup. Ct. Albany Co.; 4/9/21; Kushner, J)