This week, a law barring “forced broker fees” will go into effect despite the Real Estate Board of New York’s attempts to stop it in its tracks.
Judge Ronnie Abrams denied the Real Estate Board of New York’s request for a preliminary injunction, which would have prevented the Fairness in Apartment Rental Expenses Act, or FARE Act, from going into effect while the trade group’s lawsuit challenging the law makes its way through the court.
The judge also dismissed the trade group’s claims that the lawsuit violates the First Amendment and is preempted by state law. REBNY’s allegation that the law flies in the face of the Contract Clause can move forward.
The trade group filed a motion seeking a preliminary injunction in January. At the time, REBNY warned that allowing the law to go into effect while its lawsuit was active would force brokers, in the meantime, to spend “potentially unrecoverable sums to adapt to the new regime.”
The City Council approved the FARE Act in November with a veto-proof majority. The measure’s provisions were slated to go into effect 180 days later. The law requires landlords to pay the commission for rental brokers they hire. Typically, tenants must pay the fee, which in many cases is 15 percent of the first year’s rent.
A month later, REBNY filed a lawsuit alleging that the law violates the First Amendment because it discourages the publishing of rental listings and specifically targets “disfavored speakers,” in this case, brokers. Under the FARE Act, a broker who advertises a rental is assumed to have been hired by the landlord.
The lawsuit also claims that the FARE Act flouts the Contract Clause because it wrongfully interferes in private contracts and pre-empts state law.
REBNY argues that the law will raise rents, as owners will pass the cost of broker commissions onto tenants. The trade group says this unfairly denies tenants the choice to pay these fees upfront, rather than across an entire lease, and also precludes deals between tenants and landlords where the latter agrees to pay part of the fee or all of the fee.
The lawsuit also alleges that the law doesn’t actually bar brokers from seeking compensation from tenants — they just can’t advertise a landlord’s listing and then go after the tenant for the fee.
The city filed a motion to dismiss the lawsuit in February, countering that the FARE Act does not interfere with protected speech. The law, according to the motion, properly aligns the “principal-agent relationship” and “encourages the parties with negotiating power to agree upon and pay the broker’s fees.” Given the lack of rental supply, “the negotiating power of prospective tenants is severely limited,” the motion states.
The bill’s sponsor, Council member Chi Ossé, has called REBNY’s lawsuit a “desperate attempt by the real estate lobby to undermine the voices of city residents.”
During a hearing in May, Abrams didn’t reveal much about where she was likely to fall on REBNY’s motion. At one point, however, she questioned REBNY’s argument that the FARE Act limited tenants’ choice to pay commissions upfront or negotiate with the landlord.
“Don’t tenants have less choice?” she asked, referring to the current system of renting in New York City. “They are not choosing to have a broker.”
She then said something that elicited an audible groan from one attendee in the courtroom.
”What about a situation where the broker doesn’t do anything?”
Broker fees have long been a target of reform. City Council members have previously pitched capping or freeing tenants from having to pay commissions. After the passage of the 2019 rent laws, the Department of State issued guidance interpreting the part of the law as a ban on tenants being forced to pay broker fees. REBNY filed a lawsuit alleging that the state had overstepped its authority, and in April 2021, a judge tossed the guidance as an “unlawful intrusion.”
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