Boston is one of the nation’s most expensive cities for renters, with a median rent of around $3,600 a month, so it’s no wonder that renters have welcomed the new broker fee ban law that came into effect on August 1st this year. So what is this broker fee ban, how does it really affect renters, landlords and rental property agents and will it really bring the cost of renting down, even just a little? This article will help to answer these questions.
What is the broker fee and why was it banned?
Typically, landlords use a broker, i.e. a rental property agent, to find them a suitable tenant when they have a vacancy available to rent out. More rarely, a would-be renter may use a broker to find the property they wish to rent. There is a fee involved in paying the broker to find a suitable tenant or a rental property, which varies, but is around the cost of an average month’s rent. First time renters are often surprised to learn that even if it was the landlord who used the broker to find a tenant, this broker fee has most often been charged up to now to the renter, not the landlord. For renters who are not so well off, the extra burden of paying the broker fee, in addition to the standard first month’s rent, last month’s rent and security deposit, can make it hard to afford to find a suitable tenancy.
It is this broker fee being charged to the renter, not the landlord, which has been the target of the new ban, announced by the state Attorney General’s Office on August 1st. From this date, it will not be permitted to charge this fee to the renter unless it was the renter who hired the broker to find a property to rent, in which case the fee must be paid by the renter.
The broker fee ban is the latest attempt by the Massachusetts Attorney General’s Office (AGO) to provide some financial relief to renters. The ban on the broker fee being paid by renters when it was a landlord or sales representative who retained the services of a broker to find the tenant comes after the AGO applied to the Supreme Judicial Court (SJC) to clarify the financial obligations of renters on leaving a tenancy. The SJC ruled that landlords could not withhold amounts from security deposits from renters for such routine maintenance activities as carpet cleaning, professional cleaning or routine painting.
How the broker fee ban affects the total initial cost of renting a new tenancy
As has been mentioned above, the initial costs that have been typically paid by a renter up to now have been:
- first month’s rent;
- last month’s rent;
- cost of changing the door lock(s);
- security deposit;
- broker fee.
The security fee and the broker fee are both each around the same cost as a month’s rent, so the broker fee by itself represents about a quarter of the initial amount that must be paid up-front. The broker fee ban means that the renter will save that quarter of the cost of securing the rental property.
The broker fee ban clarifies existing misunderstanding and non-compliance about fees
Did the broker fee really have to be paid by the renter before August 1st, even if the landlord had requested broker assistance? Landlords might not like the new law, but some have pointed out that the law only clarifies something that has been around since the early 1970s. According to General Law Chapter 186, Section 15B, landlords are not permitted to charge tenants a broker fee. This law is 54 years old, and specifically says that only the first month’s rent, last month’s rent, security deposit and cost of a new lock can be charged to the tenant before the tenant takes over the rental property.
When this is taken into consideration, it seems that there has been a lot of non-compliance of the broker fee rules and landlords have either been misinformed about their responsibilities or have taken advantage of the lack of knowledge of prospective tenants of their rights under the law.
Whatever the reason why broker fees have become routinely charged to tenants despite the existing legislation, the new law strengthens the ban and makes it more difficult for landlords to pass on the equivalent of another month’s rent to the renter.
What to do if you are a renter and have been asked to pay a broker fee
There may still be occasions where landlords try and charge the broker fee, or other fees, in addition to the four mentioned above. Whether they are ignorant of the legislation or are trying to take advantage of a renter’s potential ignorance they will be in breach of the law and could face potential penalties if the case is brought to the attention of the AGO. So, what should you do if you are told you must pay a broker fee, in addition to the two months’ rent, security deposit and lock change fee? You should certainly politely point out to the landlord or agent that the law has changed or, more accurately, been strengthened, and you no longer have to pay the fee. If this doesn’t work, you are entitled to file a complaint online with the Attorney General’s Office, giving full information about what you have been told to pay. The AGO can also be contacted by phone directly.
Whether you are a landlord or a tenant, if you need legal advice about anything to do with rental properties and fees in Boston, you can arrange a consultation with a knowledgable real estate attorney.
Will the broker fee lead to an increase in the rent?
Landlords are not likely to be happy about paying an additional fee, even though it is they who have requested the service for which the fee is intended to cover. Some analysts have suggested that the cost of the broker fee will simply be absorbed by increased rent, although evidence for this from other jurisdictions where broker fees have been banned is unclear. In New York, for example, where a broker fee ban was introduced, rents have only risen by a minimal 1% since the ban, suggesting that the Massachusetts ban may genuinely be a cost saver for renters. Time will only tell whether this will be the case in the long run.
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