REBNY Seeks to Block FARE Act

The Real Estate Board of New York wants to stop the broker fee bill in its tracks.

The real estate trade group is seeking a preliminary injunction to halt the Fairness in Apartment Rental Expenses, or FARE, Act while its lawsuit makes its way through the courts. Last month REBNY filed a lawsuit to repeal the law, which requires landlords to pay the rental brokers they hire rather than forcing tenants to cover the cost.

The lawsuit alleges that the law violates the First Amendment because it discourages the publishing of rental listings. It also claims that the FARE Act flouts the Contract Clause because it wrongfully interferes in private contracts and pre-empts state law.

The City Council approved the FARE Act in November with a veto-proof majority. Mayor Eric Adams did not sign or veto the measure, allowing it to become law the next month. The measure’s provisions were slated to go into effect 180 days later.

Council member Chi Ossé has called REBNY’s lawsuit a “desperate attempt by the real estate lobby to undermine the voices of city residents.”

REBNY’s motion, filed Monday, requests a preliminary injunction to prevent the law from being enforced when it officially takes effect in June, citing that brokers will need to spend “potentially unrecoverable sums to adapt to the new regime.”

“If the Act is permitted to go into effect, brokers will need to retool their businesses to—without publishing an open listing—attract tenants willing to engage them as tenants-side brokers,” attorneys for REBNY state in court filings. “Or they must compete for a limited number of landlord-side exclusive listing agreements.”

The motion also seeks to protect existing agreements between landlords and brokers where the understanding was that tenants would pay the fee, arguing that such agreements usually last for a year or more, well beyond the law’s 180-day delay.

REBNY also argues that the law doesn’t 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, as Erik Engquist pointed out in his column last month.

A number of property owners and brokers filed statements in support of REBNY’s filing.

Eric Porco heads the rent brokerage 4 Corners Realty, which markets rental units in his family’s nine-building portfolio, as well as apartments in buildings owned by other small landlords, according to his statement. The firm also sends listings to other brokerages, making clear that if they find a tenant for an apartment, the tenant will be responsible for the broker’s fee.

Porco argues that the FARE Act further diminishes the already thin margins for landlords who were already hurting from the rent laws of 2019, which limited the ways that owners could increase rents on stabilized apartments. In his statement, Porco says the FARE Act will make it more difficult for owners to upgrade their buildings.

“The costs of one brokerage commission could mean the difference between being in the red and making a very small profit for a building in any given month,” he writes.

Property owners will often allow several agents to advertise units on a non-exclusive basis to widen the pool of potential tenants, with the understanding that the tenant will pay their fee. Agents say the FARE Act will lead to a disappearance of rental listings because small landlords will stop sending their available units to brokers, and agents will not risk advertising units. Under the FARE Act, a broker who advertises a listing is assumed to have been hired by the landlord.

“Whether it’s brokers who fear penalties under the FARE Act, or landlords who choose to avoid the significant advertising and marketing costs for their listings, the end result will be the same—fewer advertised listings for consumers resulting in a less transparent New York City rental marketplace,” Robert Rahmanian, co-founder of brokerage REAL New York, writes in a statement supporting REBNY’s motion.

Rahmanian argues that the FARE Act will drive brokers to leave the industry, as fewer landlords decide against working with them.

Tenants often pay 15 percent of the annual rent to brokers, adding thousands of dollars to the costs associated with moving. Ossé has said that eliminating this upfront cost will give tenants more leverage in lease renewal negotiations with landlords.