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Can a property manager collect a broker's fee, or is that illegal?

You may be able to refuse to pay in the future, but you probably can't get a refund now. 

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Question:

I signed a lease with my rental building's property manager, who charged me a broker's fee. Is this considered illegal key money? And if so, can I get my money back?

Answer:

It's unlikely you can get a refund, our experts say, but in the future, you can refuse to pay a fee if you're being charged by someone who is not a licensed real estate broker. 

"Under New York law, anyone can charge you a fee to rent an apartment, and the problem only arises if you refuse to pay it," says Toby Cohen, an attorney with Holm & O'Hara LLP. Under Real Property Law 442-D, he explains, only a licensed real estate broker can sue tenants for refusing to pay a fee. All others can't bring an action against you. 

Licensed brokers, meanwhile, are legally permitted to charge any commission that you both agree to.

"If you don't agree to it, and if they don't have something in writing, a court will enforce a reasonable commission," Cohen says. 

Key money, meanwhile, is a term that refers to an under-the-table payment, often to a landlord, superintendent, or building manager, and that is illegal, as tenants' rights attorney Sam Himmelstein explained previously

The prohibition doesn't extend to fees for processing credit or background checks, Cohen adds:

"Property managers are allowed to recoup those expenses. A $150 application processing fee is okay, but if it's $850, that's different." 

In these cases, you could report the managing agent who is trying to overcharge you to the Attorney General's Office, but unless the offending party put something in writing, you may have little recourse.

On the bright side, key money cases are unusual these days, according to Cohen.

"They are few and far between," he says. 

 


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