The Real Estate Board of New York sued the city Monday to block a law that will force landlords to pay the rental brokers they hire rather than stick tenants with the tab.
The trade group alleges that the Fairness in Apartment Rental Expenses Act, approved by the City Council in November, violates the First Amendment rights of brokers and landlords because it discourages the publishing of rental listings.
Under the FARE Act, a broker who advertises a rental is assumed to have been hired by the landlord. In that circumstance, a tenant cannot be forced to pay the broker’s fee, which in many cases is 15 percent of the first year’s rent.
Landlords who pay brokers themselves more often pay the equivalent of one month’s rent, or about 8 percent of the annual rent. Rental brokers fear that under the new law, their incomes would plummet.
REBNY’s members have argued that the new legislation, which Mayor Eric Adams allowed to become law by not signing or vetoing it, does not reflect how many rental listings are handled in the city. Often property owners allow several agents to advertise available units on a non-exclusive basis to widen the pool of potential tenants. Agents have warned that the new rules would lead to less transparency because listings would disappear.
The lawsuit takes this argument further, claiming the FARE Act wrongfully infringes on a specific type of speech for a select group of people — brokers and landlords. Generally speaking, the First Amendment protects commercial speech that is related to lawful activities and is not misleading.
The complaint alleges that the FARE Act will be “an enormous step backwards” for rental market transparency.
“Listings will not appear on brokers’ proprietary websites, nor will they appear on third party websites,” the lawsuit states. “Renters will have to rely on word of mouth, or hire a broker— and then still pay the fee—to find an apartment.”
The lawsuit, filed Monday in federal court in Manhattan, also alleges that the FARE Act unlawfully interferes in private contracts, in violation of the U.S. Constitution’s Contract Clause, and wrongfully pre-empts state law.
“The FARE Act is bad policy and bad law,” Carl Hum, general counsel at REBNY, said in a statement. “This legislation will not only raise rents and make it harder for tenants to find housing but it also infringes upon constitutional guarantees of free speech and contract rights, as well as New York state law.”
The lawsuit is filed against the city, as well as Vilda Vera Mayuga, commissioner of the Department of Consumer and Worker Protection. REBNY is joined by a few other plaintiffs, including the New York State Association of Realtors, Bohemia Real Estate Group, Bond New York, as well as other brokerages, and a few Housing Development Fund Corporation co-op boards.
After the City Council’s vote in November, Council member Chi Ossé, the FARE Act’s sponsor, indicated that he expected REBNY to wage a legal fight against it.
“This is something we already factored into pushing this bill,” he told The Real Deal at the time. “We worked extensively with the Law Department in putting this bill together, and I believe we do have a strong argument for this bill if it does go into court.”
The FARE Act became law on Monday, but does not go into effect for another 180 days. REBNY is expected to seek an injunction to prevent this from happening until its legal challenge concludes.
Renters are typically responsible for broker fees, which can make switching apartments a prohibitive expense. Ossé has said that the FARE Act would help level the playing field for tenants negotiating to renew their lease because they would no longer face the threat of broker fees.
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REBNY argues that under the new law, landlords will simply pass the cost of broker fees onto tenants by raising rents, though they cannot do so at rent-stabilized apartments.
To argue its case, the trade group has hired Claude Szyfer, an attorney with Hogan Lovells who helped REBNY defeat a similar reform by the state. The Department of State had interpreted the 2019 rent law as banning landlords from making tenants pay brokers. A state court sided with REBNY in 2021, ruling that the agency read something into the state law that wasn’t actually there.