NEW LAW PROHIBITING LEGAL FEES TO BE CHARGED BY A LESSOR OR AGENT THEREOF: A SEEMINGLY SIMPLE LAW WHICH IS ANYTHING BUT SIMPLE
On December 21, 2021, Governor Kathy Hochul signed Senate Bill S2014 into law, amending the Administrative Code of the City of New York, the Emergency Tenant Protection Act of nineteen seventy-four, the Emergency Housing Rent Control Law and the Real Property Law purportedly to prohibit a landlord from including any legal fees on any correspondence to, or ledger of, a tenant unless awarded pursuant to a court order. While seemingly a piece of straight-forward, simple legislation, the legislature’s uncanny knack for poor wording has resulted in this new legislation raising more issues and uncertainty.
Specifically, the language of the legislation is as follows:
Unauthorized legal fees. An owner, lessor or agent thereof shall be prohibited from assessing a lessee any fee, surcharge or other charges for legal services in connection with the operation or rental of a residential unit unless the owner, lessor or agent has the legal authority to do so pursuant to a court order. Legal services include, but are not limited to, court fees, legal representation, attorney fees, notary public charges, and administrative fees incurred by the owner, lessor or agent in connection with management of the building, including actions and proceedings in a court of law. Any agreement or assessment to the contrary shall be void as contrary to public policy.
Who Does the New Legislation Protect and Who Does it Target
This legislation addresses assessments of charges to a lessee of a residential unit. The new law applies to rent regulated tenants and non-regulated tenants; to tenants’ primary residences as well as vacation rentals. It covers multi-story apartment buildings, smaller multi-family residences, tenants who rent single family homes and also, by its clear wording, Cooperatives and their shareholders who improperly got swept into the new law’s overly expansive language.
Already, there is a Bill before the State Legislature to amend the new law to expressly exclude a shareholder of a cooperative, but it will still apply to any shareholder who leases or subleases their apartment. We will be following this corrective Bill closely to see if and when it gets signed into law.
The new law is directed to rental unit “owners”, “lessors” and “agents”. Thus, the new law targets property owners and those landlords who are not property “owners” but who are lessors such as sublessors and agents, including managing agents and individuals acting as an attorney-in-fact pursuant to a Power of Attorney.
What Does the New Law Protect Against
The new Law is titled:
“An act to amend the administrative code of the city of New York, the emergency tenant protection act of nineteen seventy-four, the emergency housing rent control law and the real property law, in relation to prohibiting charges for legal fees.”
The purpose of the new Law is to:
“…prohibit a landlord from including any legal fees not awarded pursuant to a court order on any correspondence to a tenant.”
The prefatory clause of the new Law is “Unauthorized legal fees”, meaning a legal fee that has not been authorized by court order or by court ordered stipulation.
Despite the stated purpose of the new Law being unauthorized “legal fees”, the legislature incorporated language defining “legal fees” as to include charges not traditionally defined as “legal fees” thereby raising the issue of just exactly what is prohibited.
First, it is important to note that the new Law prohibits “the assessment on a residential tenant’s ledger” of any unauthorized legal fees. Thus, it is the mere act of placing the charge on the rent ledger, that is prohibited.
Second, the new Law prohibits the assessment on a residential tenant’s ledger of any “fee, surcharge or other charges for legal services in connection with the operation or rental of a residential unit” unless pursuant to a court order. The Law then, in an effort to clarify exactly what charges are prohibited, only raises more issues by very broadly defining “legal services” to include, but not be limited to,
“Court fees, legal representation, attorney fees, notary public charges, and administrative fees incurred by the owner, lessor or agent in connection with management of the building, including actions and proceedings in a court of law.”
Given that legal representation can only be provided, by law, by attorneys, it is unclear what difference the legislature meant between fees for “legal representation” and “attorney fees”.
Notary public charges can be made by a notary who is not an attorney and who is not part of a law firm and may be a charge that has nothing at all to do with a legal action or proceeding. The new Law seems to prohibit assessing the tenant for such a charge, even though such a notary charge is not a legal fee as we know it.
Most troublesome, however, is the prohibition of the assessment of “administrative fees incurred by the owner, lessor or agent in connection with the management of the building, including actions and proceedings in a court of law.” Given the title and purpose of the Law one might assume that the “administrative fees incurred by the owner, lessor or agent in connection with management of the building” defines a relevant component of “legal fees”; however, this assumption seems to be dispelled by the fact that the clause goes on to say “including actions and proceedings in a court of law”, meaning all “administrative fees” are prohibited, not only those isolated to bringing a lawsuit.
So exactly what are “administrative fees” “in connection with the management of the building”? This language is broad enough to include, for example, all fees incurred by an owner-lessor or agent and subsequently charged back to a tenant in connection with, for example: an application to assign or sublease the rented premises, processing the return of a tenant check for insufficient funds, replacement of a lost key fob, or a violation levied against the rented premises as a result of the tenant’s conduct. What charges will actually get swept under this umbrella of prohibited “administrative fees” will be determined over time by the courts.
Can the Owner/Lessor Include a Lease Clause to Negate the Applicability of the New Law
The new legislation expressly provides that “Any agreement to the contrary will be void as against public policy”; therefore, there is no way for the owner, landlord or agent to escape the provisions of the new Law by way of a contract escape clause.
What are the Consequences of Violating the New Law
The Law itself merely provides that any assessment of an unauthorized legal fee charge “shall be void as contrary to public policy.” Thus, the assessed charge is never properly collectable, not even from a tenant’s security deposit at the end of the tenancy. Whether or not there will be further consequences intended or not, of violating the new law will, once again, be determine over time by the courts.
As a result, Daniels Norelli Cecere & Tavel, PC suggests that, at this time, and until either the legislature clarifies exactly what “administrative fees” are prohibited to be assessed, or, more likely, the courts do so by case law, an owner, landlord or agent should not assess any charges, other than rent and utility charge pass throughs, to a residential lessee’s ledger unless permitted by court order.