URGENT ALERT- updated 2/10/2020 DEAR HGAR MLS MEMBERS: As many of you know, on Friday, February 7, 2020, HGAR issued an URGENT ALERT regarding the DOS Guidance issued on January 31, 2020, in which the New York State Department of State (DOS) published an updated “Guidance for Real Estate Professionals Concerning Statewide Housing Security & Tenant Protection Act of 2019 and the Housing Stability and Tenant Protection Act” (“DOS Guidance”)
IT RELATED TO THE FAQ #5 and PAYMENT OF “BROKER FEES” BY TENANTS.
A New York judge in Albany has granted a Temporary Restraining Order (“TRO”) this afternoon, halting specifically the DOS’s guidance with respect to FAQ#5 whereby the DOS had barred the payment of Tenant-paid rental commissions (“broker fees”).
The DOS Guidance had prohibited tenants from paying rental commissions in cases where the landlord hired an agent to market the listing. Early on Monday morning, REBNY, NYSAR and other brokerage firms filed an Article 78 Proceeding requesting a TRO against the DOS, which has been granted.
To our knowledge, no other part of the DOS Guidance was halted or modified by the TRO.
UPDATED NOTICE – IN LIGHT OF THE RECENTLY ISSUED TEMPORARY RESTRAINING ORDER AND, UNTIL FURTHER NOTICE, BROKERS AND AGENTS MAY CONTINUE TO COLLECT “BROKER FEES”IN THE SAME MANNER AS WAS CUSTOMARY PRIOR TO THE ISSUANCE OF THE DOS GUIDANCE. AT THIS TIME, HGAR MEMBERS DO NOT NEED TO MODIFY ANY LISTINGS AS RECOMMENDED BY HGAR’S PREVIOUS ALERT.
Breaking news, The Real Deal ! (see https://therealdeal.com/2020/02/10/judge-halts-rental-commission-ban/) reported that: “In a statement, REBNY and NYSAR said they look forward to resolving the issue in court ‘in the weeks ahead.’ In the meantime, agents will be able to ‘do business in the same way they did prior to last week’s DOS memo without fear of discipline by the DOS.’
The plaintiffs argued that rental agents would suffer irreparable injury unless the restraining order were issued. The next step in the process would be a hearing on whether a preliminary injunction is justified. It was not immediately clear if the Cuomo administration would appeal Monday’s decision. In to this email to members, REBNY said it would head back to court on March 13.
In the meantime, agents can go back to business as usual. “Landlord’s agents can collect a commission from a tenant until further notice,’ the email said.”
Published Feb. 5, 2020 Updated Feb. 6, 2020, 5:14 a.m. ET
In New York City’s intensely competitive rental market, tenants usually deal with middlemen known as brokers, who have near absolute control over apartment listings, viewing appointments and leases.
In return, brokers collect fees that can be as much as 15 percent of the annual lease, typically paid in one lump sum by tenants before they can move in.
But late on Tuesday, New York State effectively eliminated them.
In an unexpected addendum to last year’s rent laws, state regulators said renters can no longer be charged broker fees, potentially upending the market and delivering the latest blow to an industry already reeling from new regulations and sweeping tenant protections.
New York is one of the few cities in the country with a broker industry that has such financial leverage over how people rent apartments.
And the elimination of broker fees, in addition to the laws passed last year, pushes New York further as a national leader in creating rules favorable toward renters.
Brokers can still collect a fee, the state said in the revised rules, but it must be paid by the landlord unless a prospective tenant hired them to help find an apartment.
The new rule, buried in a legal guidance on last year’s rent laws, caught lawmakers, many landlords and brokers off guard. The Real Estate Board of New York, the influential trade group, immediately threatened to challenge the rule in court and urged its members to protest.
“This is a dire issue with our members, so we are literally going through every single avenue,” said Reggie Thomas, the board’s senior vice president for government affairs. “It’s an all-hands on deck thing because this came out of left field.”
Brokers warned that the new rules would simply increase what tenants pay in monthly rent, since many landlords will likely pass on the cost of a broker’s fee to their residents in higher rent.
“What was the intended purpose of this?” said Jared Antin, director of sales at Elegran. “If it’s to minimize the cost to the tenant, it just changes when the cost is due. Instead of upfront, they will pay it monthly.”
But state laws limit how much rents can be raised in New York City’s roughly 1 million rent-regulated apartments. There are more than 900,000 market-rate apartments that are not regulated.
Tenant advocates cheered the new broker fee rule, saying it helps tilt an uneven real estate playing field.
“These are important tenant protections and it’s about time we had them,” said Michael McKee, treasurer of the Tenants PAC. “Real estate brokers have been able to get away with a lot for a long time so it’s about time they got reined in.”
Newcomers to New York City have long been mystified and frustrated about having to pay a broker’s fee even when they found an apartment online. But unlike most cities in the United States, landlords often choose not to work directly with renters or market their units on their own. Instead, they hire a broker.
For months, real estate insiders had privately feared this particular interpretation of the new rent laws, which emboldened Democratic lawmakers passed last year after regaining control of the Legislature for the first time in a decade.
The new laws, aimed at protecting tenants and strengthening rent regulations, said that tenants could be charged no more than $20 in fees when applying for an apartment, including background and credit checks. The rent laws passed in June also capped security deposits at one-month’s rent, further diminishing the lump sum amount renters typically must pay before being given keys to an apartment.
It was unclear from the language, however, whether that $20 cap also applied to broker fees or whether it was lawmakers’ intent to abolish the practice of tenants paying broker fees. For a $2,500 per month apartment, a broker could collect up to $4,500 in a one-time payment based on a 15 percent fee.
In its most recent guidance, however, state regulators clarified that the cap did indeed apply to broker fees, effectively banning the practice.
Now, the burden falls on landlords to pay brokers their fees or they can choose to list, market and lease their units on their own. The changes could effectively turn New York’s rental market into a no-fee market if renters choose to hunt for an apartment without hiring a broker themselves.
It was the latest in a long string of recent defeats for New York’s real estate industry, which has seen its power diminished after years of allying itself with Republicans when they were in control in Albany.
“This one is just like salt in the wounds,” said Jay Martin, the executive director of the Community Housing Improvement Program, a trade association representing about 4,000 building owners. “It’s going to decimate the brokerage industry.”
Mr. Martin said the prohibition would disproportionately affect small building owners, who typically outsource the work of showing apartments and finding tenants to real estate brokers.
Given New York City’s exorbitant rents, broker fees have become the target of progressive lawmakers seeking to curb housing costs. Last year, for example, Councilman Keith Powers introduced a bill to cap broker fees at one-month’s rent.
Some tenant activists rejoiced the new guidance, saying it would help reduce the barriers for housing for many tenants and potentially reduce New York’s growing homeless population.
“It’s about rehousing 92,000 homeless people,” said Cea Weaver, the campaign coordinator of Housing Justice for All, a statewide coalition of tenants that pushed for the new rent laws. “Hopefully, it’ll make it easier for people being pushed from substandard housing to substandard housing.”
Still, Ms. Weaver said that she was skeptical the real estate industry would abide by the new guidance, which is subject to change. The best way to protect tenants, she said, was if state lawmakers passed a good cause eviction bill that would make it even harder for landlords to raise rents and evict tenants.
For market-rate apartments, the cost of broker fees could still trickle down, but it might be impossible to pass on the costs to tenants of rent-regulated units. Increases on those rents are set by the government.
About 2.4 million people live in rent-regulated apartments in New York City.
Most significantly Mr. Martin said, the changes could lead thousands of real estate brokers to lose their jobs.
“I don’t think it’s hyperbole to say that,” Mr. Martin said.
There were more than 25,000 licensed real estate brokers in New York City as of early 2019, according to New York’s Department of State.
Eric Benaim, the chief executive of Modern Spaces, a brokerage firm with about 100 employees, said that the changes hurt agents, who make a living based on collecting broker’s fees.
“They are just on this high,” Mr. Benaim said, “of just punishing real estate and those in the business.”
Matthew Haag covers the intersection of real estate and politics in the New York region. He previously was a general assignment and breaking news reporter at The Times and worked as an education reporter at The Dallas Morning News. @matthewhaag
Luis Ferré-Sadurní covers New York State politics in Albany. He joined The Times in June 2017 and previously wrote about housing for the Metro desk. He is originally from San Juan, Puerto Rico. @luisferreA version of this article appears in print on Feb. 6, 2020, Section A, Page 20 of the New York edition with the headline: Shock for Landlords Is Delight for Renters: No More Broker Fees. Order Reprints | Today’s Paper | Subscribe
We knew the day was coming when landlords and tenants would recognize the inefficiencies and unnecessary expense of renting property. We are prepared. And sales agents need not despair; They must simply reinvent themselves and sell real estate software instead. If properly done, this will be a win-win situation because that sales force comes armed with industry contacts and experience. Now they have a more palliative and more ethical product.
Smart contracts on the blockchain allow the landlord to bypass the broker and save money. He can also save on many other expenses associated with renting his property. Likewise, the tenant can have certain assurances and get faster results. Unfortunately, the middlemen such as lawyers and rental agents may lose commissions in the traditional way. However, if they are proactive they can begin to sell real estate software in the form of D-Apps and Smart contract. This is what we do with our product The Real-T.
An Overview Of Landlord-Tenant Leases
The Real-T Smart Lease.
In order to understand how the Real-T Smart Lease is designed let’s understand the anatomy of any standard Landlord Tenant Rental Agreement. The most common type of tenancy agreement is the ‘assured shorthold tenancy’ (AST). This agreement must be written in plain English and be of mutual benefit to both the tenant and the landlord. Differences exist between the various types of Lease deposit schemes such as insurance backed (whereby landlord keeps the deposit and pays a premium) versus custodial schemes (whereby deposit is transferred to the trusted third party scheme). There are also three government backed deposit schemes :
the Deposit Protection Service (DPS),
MyDeposits, and
the Tenancy Deposit Scheme (TDS).
The landlord must ensure that he complies with the law and puts the deposit in one of the approved escrow accounts within 30 days of receiving it . At the end of the tenancy, the deposit (minus any agreed deductions) must be returned within 10 days to the tenant , but can take longer in the case of disputes. Some of these disputes can end up in court. Handling the deposit is integrated into the smart contracts, because they provide a perfect method of holding funds without the need for a trusted third party. The main tenancy agreement stages are illustrated in the next diagram.
The main stages involved in the tenancy agreement process
Issues that can arise with tenancies
Issues that can arise with tenancies often involve the tenant failing to pay the rent. If the tenant cannot afford the rent, he can resolve the issue by giving the landlord notice to end the tenancy agreement and leave the property (generally with 2 months notice). However, this is not always the case and tenants often stay in the property without paying rent, leading to them being served an eviction notice from the real estate agent. This notice must be hand delivered or sent by recorded delivery in order to obtain a proof of delivery of the document – registered mail – (it cannot be sent by email for a number of legal reasons).
There are also several checks that the estate agent must undertake to verify that the tenant is suitable for the tenancy and has a good record; for instance a background and credit report. They obtain an employer’s reference, a bank status inquiry (to ensure they can afford the rent), and a previous landlord reference. These help to ensure the tenant has a good record and will pay the agreed rent on time. With the current immigration headlines the tenant may in some cases nowadays be required to also have a valid passport, or a valid visa which guarantees their legal right to stay in the country for the duration of the tenancy. I believe these checks would still need to be conducted by the real estate agent to work alongside Real-T, seeing as these agents have years of experience in this field to ensure a more accurate assessment (especially as a lot of the checks carried out are done with the knowledge of what fraudulent documents look like).
Application requirements:
• The Real-T D-App is very robust as it will be handling other people’s money.
• Application does not show any users information that they are not authorized to see, due to tenancies being private matters.
• The user interface is simple to use for non-technical users.
A Realtor Office
Tenancy Agreements as Smart Contracts
Smart contracts are perfectly suited to being adapted to all kinds of contractual agreements, particularly those which involve some kind of value transfer where there are multiple, potentially distrusting, parties. As the smart contracts are independent entities which live on the decentralized blockchain whether it be the Ethereum or RSK ( formerly Rootstock ) blockchain, they can be publicly inspected, verified, and providing their logic is sound, are completely tamper-proof. Once created, the data they store is immutable, unless explicitly modified by valid transactions sent by contract participants. In the case of tenancy agreements, these transactions can map to operations such as signing the contract or transferring a rental payment. The following subsections will look at these tenancy agreement actions in more detail and will assess the possible design options.
The Real-T Smart Lease will not deal with the phase during which tenancy agreement terms such as rental amount and tenancy duration are agreed upon, since these are generally known in advance or negotiated in person prior to the contract being created. If, in the future, it was deemed necessary to add this functionality the interface would likely resemble that of the Express Agreement project detailed in another post on this website with that label. Instead, this project will handle the stages during which the tenancy agreement is actually active, from contract creation until lease completion.
Contract Creation and Signing
How does it work?
The tenancy agreement data will be stored in a smart contract which is then stored onto the blockchain in order to capitalize on the logic guarantees that smart contract code provides. This means that information such as the contract start time and duration need to be stored on-chain in order to, for example, disallow payments being made before the tenancy has started.
… To read more Register and Click on “Tenancy Smart Contract” in the Table of Contents .
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