Apartment landlords won’t be able to make tenants pay a range of fees, from the broker’s commission to the background check fee. iStock illustration

With new legislation championed by Gov. Maura Healey now law, Massachusetts has joined New York City in legally prohibiting tenant-paid broker fees.

Apartment landlords will have options to offset the cost, but compliance will be crucial as failure to follow the rules could be costly, experts say.

The text of the law Healey signed July 4 stipulates an apartment broker may only work with a prospective tenant to find a rental property or work with a landlord or landlord’s agent to find a tenant for a property. This means that brokers can only participate in one side of the deal and not work on behalf of both the renter and the landlord.

“If any landlord is aware of the law and wants to comply with it, all they have to do is pay their broker and raise the rent to compensate for that,” said Douglas Quattrochi, executive director of MassLandlords.

Healey has celebrated the legislation, posting a video to social media stating, “I’m getting rid of broker’s fees for renters in Massachusetts”.

“If you’ve moved apartments recently, you’ve probably paid four months’ rent up front – first month, last month, security deposit and a broker’s fee for a broker you didn’t even hire,” she said in a video posted to X, formerly Twitter. “So, this week, as part of my budget bill, I’m getting rid of those renter-paid brokers fees for good.”

While this might seem like a cost-saving measure for renters, experts believe many landlords will now try to recover the broker’s commission by hiking their base rent, spreading the one-time fee out over the lease term.

Still, Anthony Panebianco, a real estate litigator with Boston law firm Davis Malm, said that it could have a meaningful impact on renters.

“It might remove a barrier of entry for low-income housing for some individuals that wouldn’t otherwise be able to afford that large up-front payment, that is a bonus,” he said. “But in the long term, they’re paying more money.”

Concern for Smaller Operators

Smaller landlords could feel the effects of the legislation greater than large companies who construct apartment complexes.

Boston Pads CEO Demetrios Salpoglou said that his company sent out a survey to over 10,000 local landlords and 93 percent of respondents expressed serious concern that this legislation would disproportionately and negatively impact them compared to larger landlords.

If they are unable to bear the cost of paying a broker fee, he said, small landlords could struggle to figure out how to show their unit or units.

“Real estate agents provide an incredibly valuable service for most landlords,” he said. “They worked super hard to buy an investment property. A lot of them own small businesses, working seven days a week. They work tremendous hours; they can’t just leave their small business so they’re reliant on agents to show their properties.”

While renters and landlords are experiencing a lot of change, there will not be a lot for brokers.

“For the broker’s perspective, it’s going to operate somewhat the same way,” Panebianco said. “Brokers aren’t going to do this for free, so they have to get paid one way or the other. If it comes from the tenant, comes from the landlord, they don’t care.”

Among the details you need to take care of: Brokers and landlords must update existing contracts to stipulate that the renter won’t be paying the broker’s fee. iStock illustration

Compliance To-Do List

Landlords will need to focus on following the letter of the law, real estate lawyers interviewed for this story said. For instance, any fee shall only be paid by the party who originally engaged and entered into a contract with the apartment broker.

Most apartment hunters opt to look for units on their own, meaning that most of the time, landlords are the ones to make first contact and enter into a contract with a broker to help market and show the home. With some landlords already having relationships with agents, there could be a grey area but according to Panebianco, when dealing with real estate, a legal contract needs to be written out.

Additionally, Panebianco stated that landlords that have previous agreements with agents will need to write up new agreements stating that the tenant will no longer be paying the fee.

Big Costs to Ignoring the Law

If any landlords are caught breaking or ignoring the law, it could be costly. While they are unlikely to face any criminal charges, the legislation does fall under Chapter 93A of the Massachusetts General Laws which is commonly known as the Consumer Protection Act. The law protects people from unfair and misleading business actions and gives buyers the right to sue in court and get back money they lost.

While smaller landlords would feel a greater sting from a legal penalty, larger landlords are more likely to get sued. It’s easier for consumers to sue a larger company over a Chapter 93 violation as compared to a owner-operator landlord, said William G. Cosmas Jr., a partner at Boston law firm Laredo & Smith.

“It allows for potential recovery of attorney’s fees and potentially double or triple damages depending on the conduct that’s involved,” Cosmas said. “There’s also provision here that talks about a fine being established for violation of the act, which opens it up to the attorney general bringing actions against [landlords who violate it].”

Sam Minton

Brokers Need to Comply, Too

Landlords won’t be the only ones that have to make sure they are in compliance. Brokers will need to make sure they are taking payments from the proper party as failure to comply could cost them their license.

“Brokers have a license, so they want to be extra careful,” Panebianco said. “They’re going to be extra careful making sure that they apply the laws properly and correctly, because they can come to task with the [state] licensure department if a number of people are saying, ‘Hey, you violated the law and charged me when you shouldn’t charge me.’”

Additionally, there are other fees that brokers usually charge when conducting a transaction. Application processing fees, credit checks fees and background checks fees were not things that landlords have historically been able to charge, but brokers were able to.

“If a renter is not hiring [their] own broker and you’re going to a landlord, and the landlord rightfully wants a credit check and all of that done, the landlord can’t charge the tenant for that as a separate amount,” said Edward S. Hershfield, a real estate lawyer with Greenberg Taurig LLP.

Hershfield theorized that the cost could be rolled into a unit’s base rent, further adding to the costs that renters will face in the long term.