New York City’s rental housing market is on the verge of a major change as the recently passed Fair Agency Fees Act (FARE Act) comes into effect starting this Wednesday, June 11th. Under this new law, in most cases, real estate agents will no longer be allowed to charge exorbitant agency fees to tenants unless the tenant actively hired the agent to find a property.
The main provision of the FARE Act states that whoever hires the agent shall bear the cost – typically the landlord hires the agent, therefore the landlord is responsible for the fees and is prohibited from passing on the costs to the tenant.
The aim of this new law is to alleviate the economic burden on tenants. In the past, even if tenants found properties through landlords or websites themselves, they were often required to pay a significant agency fee, typically amounting to one month’s rent, or even up to 15% of the annual rent.
Despite objections raised by groups such as the Real Estate Board of New York (REBNY) and the New York State Association of Realtors, who have filed lawsuits attempting to block the law from taking effect, on Tuesday, Federal Judge Ronnie Abrams rejected the lawsuit, ruling that the law does not infringe on the contractual freedom of landlords and real estate agents, hence denying a stay. REBNY Chairman James Whelan expressed disappointment with the ruling, warning that once the new law is enforced, the number of rental properties available may decrease, leading to further rent hikes. He stated that the industry will continue to pursue legal action and explore the possibility of appeals.
The Department of Consumer and Worker Protection (DCWP) has announced penalties for violations and is preparing for enforcement. According to the guidelines released by DCWP, if an agent collects fees without the tenant’s authorization, the first offense will result in a $750 fine, the second offense carries a $1,800 fine, and subsequent offenses will incur a $2,000 fine. Furthermore, failure to clearly list all fees payable by the tenant or provide a breakdown of fees will result in fines of $750 and $375 respectively.
However, the new law does not completely prohibit agency fees. If a tenant hires an agent to assist in finding rental housing on their own, they are still required to pay the relevant fees.
According to a study by the housing search platform StreetEasy last year, New York tenants on average have to pay nearly $13,000 when signing a lease, including agency fees, moving costs, and deposits. Council Member Chi Ossé, one of the main proponents of the bill, emphasizes that this reform can significantly ease the burden on residents.
However, some opponents fear that landlords may in the future “shift” agency fees into the monthly rent, and according to several English-language media reports, there have been instances where landlords have indeed raised rent prices.
If individuals believe they are being charged unlawfully, they can call 311 or visit nyc.gov/consumers to report the issue.