Tenants Pressured to Pay Cash Up Front Despite New Rent Law’s Limits

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New York’s new rent law, signed in June, bars landlords from collecting more than one month’s security deposit from prospective tenants.

But that hasn’t stopped brokers and property owners from demanding larger sums from apartment-hunters — a “good faith” deposit that can cost applicants dearly if they have second thoughts.

That’s what THE CITY heard from some of the scores of readers who responded to a survey asking about experiences they’ve had while looking to lease a New York City apartment under the new rent law — including getting charged application fees above a new $20 limit.

One respondent, who recently moved into an apartment in Park Slope and declined to be named for fear that she would end up on a tenant blacklist, said she was asked by the broker to submit a good faith deposit with her application.

The deposit totalled $2,500, equivalent to one month’s rent, she said in an interview. But the request came with a caveat — if she was offered the apartment but declined to sign the lease, she would lose her money.

Prior to submitting the deposit, she asked to see the recent bedbug infestation history on the building — which landlords are required to provide new tenants under law — along with information about lead paint. She said the broker rebuffed her.

“They said no, that I would get that at the lease-signing,” she told THE CITY. “Obviously, that is like a high-stakes situation. If there was some sort of history disclosed recently and you wanted to walk away because you weren’t comfortable with it, that would mean you would be walking away from the apartment and losing the good faith deposit.”

She took a deep breath and signed the lease on the two-bedroom unit anyway. The $2,500 good faith deposit was then subtracted from the broker’s fee, which was negotiated down from 15% to 12% of the annual rent.

Money at Risk

Good faith deposits aren’t a new concept: Prospective renters or buyers put money down on an application to show the landlord or seller that they’re serious about their intentions or to make their application more favorable.

But a transaction that was once a deal sweetener has become virtually obligatory in recent months, say tenants, with brokers and landlords frequently pressuring prospective renters to submit deposits.

Another respondent, who did not want to be named for fear of being sued or evicted by her landlord, shared a similar story.

The broker working on the Bushwick apartment the woman sought required that she submit a $2,150 good faith deposit with her application in August. The non-refundable payment amounted to one month’s rent and would transition to a broker’s fee “regardless of whether or not we decided to sign the lease,” she told THE CITY.

“If our application was accepted — even if we didn’t end up signing the lease or even if we backed out after — we would still lose the broker fee and good faith deposit. That was really strange to me,” she said.

The broker informed her the company would stop showing the unit in Bushwick once a good faith deposit was submitted. But she said she witnessed the brokerage firm accept another application for the same unit.

Less than a month into her lease, the woman said, the landlord is threatening legal action against her for filing a 311 complaint over bedbugs.

Report Brokers, State Says

Samuel Himmelstein, a housing lawyer at Manhattan-based Himmelstein, McConnell, Gribben, Donoghue and Joseph, said that good faith deposits are “not allowed” under his reading of the new Housing Security and Tenant Protection Act.

But, he noted, such a prohibition “could be a very hard thing to enforce.”

The recently enacted law states that “no landlord, lessor, sublessor or grantor may demand payment, fee or charge for the processing, review or acceptance of an application or demand any other payment, fee or charge before or at the beginning of the tenancy, except for background checks and credit checks.”

Assemblymember Linda Rosenthal (D-Manhattan), who has been pushing for stronger tenant protections for years, said good faith deposits are strictly illegal.

“It’s an attempt to circumvent the law, and anyone who has been told to pay a good faith deposit should report the company to the Department of State and to me, or their elected official,” Rosenthal said.

If brokers collect a deposit to reserve a place in line and keep the money even after a tenant changes their mind before the landlord agrees to rent the apartment to them, “then the deposit collected would be considered unearned and/or to have not been a legitimate charge for a service rendered, and therefore would be prohibited” under state law, Department of State spokesperson Mercedes Padilla said in an email.

She said tenants who have had brokers retain deposits in situations should file a complaint with the department, which oversees the real estate profession.

As THE CITY previously reported, the sweeping housing measures state lawmakers passed in June also contained a $20 cap on application fees, including background or credit checks. Brokers charged many tenants larger sums, some into the hundreds of dollars, and asserted that the new restriction did not apply to them.

Last week, the Department of State declared that brokers, who had claimed the law implicitly exempted them from the $20 fee limit, also have to abide by the limit for rental apartments. Applicants seeking to buy or rent co-ops or condos, however, may be charged more.

“We appreciate the Department of State providing further guidance on the manner in which the new rent regulations affect real estate licensees in New York State.” said Carl Hum, the general counsel at the Real Estate Board of New York, a trade group that represents property owners and brokers.

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