Renting an apartment in Newark is about to get a little cheaper up front, and owners who use brokers will be picking up the tab.
The Newark Municipal Council unanimously approved an ordinance that prevents property owners and their agents from charging tenants broker fees to rent a place to live, the City of Newark announced Sept. 24. The city's legal notice shows the council adopted it on Sept. 23. Under the new rules, landlords and agents must pay any fees charged by the brokers they hire.
The ordinance is part of Mayor Ras J. Baraka's "Keeping Newark Affordable" package of legislation.
"When people rent an apartment in Newark, they too often must pay a large brokers fee or commission in addition to the security deposit of one or two months' rent and the high expense of moving," Baraka said. "This widespread practice adds to the major expense and stress of finding a new place to live and takes advantage of the desperate need to find an affordable apartment during a severe housing shortage."
He added that the ordinance "lifts an unfair and unjust burden on tenants, and puts it where it belongs, on the backs of landlords, owners, developers and their agents."
What the ordinance does
The core rule is simple: tenants don't pay broker fees. But the ordinance also closes the obvious workarounds.
A landlord can't recover a broker's fee from a tenant in another form. Landlords can't raise the rent or add fees to cover that cost, and they can't ask a tenant to pay them back. Owners, landlords and developers are still free to hire brokers. They just have to pay them.
The ordinance also requires all tenant fees to be listed and advertised in a clear and conspicuous way. Before a lease is signed, the landlord or agent must give the tenant an itemized written disclosure of every fee the tenant must pay, along with the penalties a landlord faces for breaking the rules.
It's also now illegal to require a tenant to work with a brokerage firm or agent as a condition of renting. Rental applications must include a statement signed by the landlord affirming that no brokerage fees will be charged to the tenant.
Enforcement and timing
Violations carry a fine of up to $1,250, and each improper fee charged to a tenant counts as a separate violation, Patch reported. The rules are enforced by the Division of Rent Control in the city's Department of Economic and Housing Development, along with the Newark Department of Public Safety.
According to the city, the ordinance takes effect 20 days after passage and publication, as required by law.
The city says Newark's ordinance is a companion to similar legislation being discussed in the New Jersey Legislature, which reflects concern at the state level about how broker fees affect people looking for rental housing. NJ Spotlight News, republishing a report from New Jersey Urban News, compared the approach to New York City's FARE Act, under which whoever hires the broker is responsible for paying the fee.
Newark is New Jersey's largest city. As Baraka described it, a broker fee stacked on top of a security deposit of one or two months' rent plus moving costs can be a big hurdle for anyone trying to get into a new apartment. The ordinance takes that cost off the tenant's side of the ledger.
For landlords, the change means broker costs now come out of their own pocket, and they can't simply pass those costs along through higher rent or add-on fees.
Why it matters for Contractors
This ordinance is aimed at landlords and brokers, but it reaches into the construction world too. Plenty of contractors in Newark own a few rental units or work for small landlords and developers who do, and those owners now have a new cost to plan for if they lease through a broker, plus new disclosure paperwork before every lease. Developers leasing up new buildings in Newark, including the many mid-size and high-rise projects in the pipeline, will have to work broker costs into their lease-up budgets instead of relying on tenants to cover them. That's not a reason to stop building, but it is one more line item in the numbers. If the state Legislature passes a similar bill, the same rules could reach rental markets across New Jersey.