Ask an Expert

I was asked to pay a $500 'processing fee' for a rental application. Is this legal?

By Alanna Schubach | July 12, 2021 - 1:30PM 

Changes to the rent laws capped application fees at $20, but there is an exception for rentals in co-op and condo buildings.

Austin Havens-Bowen for Brick Underground/Flickr

Question:

I'm looking for a new rental apartment and a broker says I will have a "processing fee" of $500 for my application. He says I'll be refunded if my application is rejected, but if I pull my own application, then I will not get a refund. I'm pretty sure this is illegal, and I want to report him to the Attorney General, but I'm worried there will be consequences for me if I do so. What should I do?

Answer:

In most cases, charging this kind of fee is illegal under rent reform legislation passed in 2019, our experts say. The Housing Stability and Tenant Protection Act (HSTPA), passed by the New York State legislature, caps application fees charged to renters at $20—to cover the cost of running a credit check on them. 

Broker fees, however are a different matter: "The Department of State read HSTPA to mean that tenants don't have to pay broker fees, but brokers sued in the Supreme Court and won," explains Sam Himmelstein, a lawyer who represents residential and commercial tenants and tenant associations (and FYI, a Brick sponsor).

The DOS has since updated its guidance and confirmed that landlords' brokers can continue to collect fees from tenants. This fee is typically one month of rent, or 12 to 15 percent of the annual rent, and is paid when the tenant signs the lease. Rental application fees exceeding $20 are still against the law.

But in the case of this renter: "This is clearly an application fee, and there is no doubt that HSTPA outlaws it," Himmelstein says.

Despite the law, there are unscrupulous brokers out there who are still trying to collect high application fees, and renters willing to pay to get the apartment—who may be unaware that they're not obligated to. There are also exceptions to the HSTPA law on application fees. For instance, if you rent in a co-op or condo building, you may be charged steep application fees by the board. Those fees are legal. 

If you have your heart set on this apartment, you could try going up the chain of command to find out why you're being asked to pay this. 

"My suggestion is to speak with the managing director of the broker who is asking for the $500 fee and find out if this is the policy of the firm or that particular broker," says Dennis R. Hughes, a broker with Corcoran. 

Ideally, when you inform the manager that one of their employees is attempting to charge you an illegal fee, they will try to make this right. If you ultimately decide you want to file a complaint against the broker, you can do so by submitting this form to the Department of State. You could also report the broker's misconduct to the Real Estate Board of New York (REBNY) if they are a member of the organization, which has its own set of ethics for brokers. 

In terms of repercussions, there is no known blacklist for renters who complain about brokers.


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