NEW YORK (WABC) -- There was unexpected upheaval in New York City's housing market with the surprise ban of broker fees for renters.
State housing regulators slipped the ban into a reform package on Wednesday that went into effect in September of 2019, however, after receiving many questions, the Department of State provided updated guidance that went into effect on Jan. 31.
"When a landlord selects a broker to find a tenant and to negotiate a lease, for a fee, that obligation to pay the broker cannot be shifted to the tenant because it would be a 'payment, fee or charge before or at the beginning of the tenancy' other than a background or credit check as provided in that section," the law states.
Most brokers, landlords and even lawmakers were apparently unaware of the plan.
The DOS said it recognizes the Statewide Security and Tenant Protection Acts of 2019 has already had a significant impact on housing markets throughout the state.
"The updated guidance continues to interpret the laws according to their plain meaning and consistent with the way they were intended to be applied -- which is to provide the strongest possible set of protections to tenants," the DOS said.
There is already talk of lawsuits to stop the change.
Until now, brokers have been charging renters as much as 15% of an annual lease.
Michael McKee from the Tenants Political Action Committee say the important consumer protections are long overdue.
"It's up to a landlord whether to rent to somebody, not to the broker, most of these arrangements are very cozy, the landlords and the brokers are in it together, and it's basically profiteering," McKee said.
While many are celebrating the new rules, some say this is a bombshell for landlords and brokers.
Sarah Saltzberg is a principal broker and CEO at Bohemia Realty in Harlem. She said the way the DOS suddenly announced the changes is "irresponsible."
"We would have to change our entire business model," Saltzberg said. "We'll fight for better lease terms, we'll fight for some concessions, in some cases we'll fight for the tenant to even be considered by the landlord who might not otherwise be looking at them, so again, there is value there."
The Real Estate Board of New York released the following statement:
"We are aggressively pushing back on the Department of State's misguided interpretation that will have a devastating impact on hard-working real estate agents, owners, and renters throughout New York State. If enforced, this guidance would result in higher prices for New Yorkers as building owners include commissions into rents and dramatically cut the incomes of tens of thousands of agents who provide a valued service in helping people find their new homes."
The DOS clarified that the removal of the broker fee is not retroactive.
"This is not intended to apply retroactively, and future transactions should be entered into with this guidance in mind," said Erin McCarthy, a spokeswoman for the department.
These rules do not apply to renters who directly hire a broker or agent. Those fees will still be applicable.
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New rules protect New York City renters from paying broker fees