NYC Real Estate Industry Set to Battle New Law Protecting Tenants from Broker Fees

NYC Real Estate Industry Set to Battle New Law Protecting Tenants from Broker Fees

By: Hadassa Kalatizadeh

New York City real estate brokers and landlords are banding together to sue the city over a controversial new law which aims to protect tenants from costly broker fees.  As reported by the NY Post, the Real Estate Board of New York (REBNY) and other groups representing brokers and property owners filed a lawsuit suit last week in a joint effort to block a new bill, which passed in the City Council with a veto-proof majority of 42-8 on Nov. 13.

The legislation is slated to take effect this summer, unless the lawsuit is able to delay or block it.  “While the FARE Act may have the ‘right intention,’ it will wreak havoc on the New York City rental markets and unleash a host of unintended consequences, causing immediate and irreparable harm to the consumers it purports to protect, as well as harm brokers and landlords around the city,” the suit says.

The proposed law, named the Fairness in Apartment Rentals Act (FARE), protects the prospective tenants from paying the broker fee, mandating that it should rather be paid by the person hiring the broker.  The bill’s supporters hope the bill will help ease the city’s housing affordability crisis, while opponents argue it could actually lead to rent spikes.  “The FARE Act is bad policy and bad law,” REBNY lawyer and Senior Vice President Carl Hum said.  “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”, Hum told The Post.

The bill, approved by the city council, is set take effect in July 2025– unless the judge in the Manhattan federal court case puts a halt on it.  “Although the [real estate] industry has a high burden in court … they [brokers] have a shot because the merits are on the side of the industry,” NYC trial attorney and lobbyist David Schwartz told The Post, explaining that a judge has the power to block the law from taking effect.  “The law is another attempt by our local government to micro-manage the freedom of parties to enter into a contract and this law violates the contracts clause and the first amendment of the US Constitution, and also is pre-empted by state law,” Schwartz added.

According to the information in The Post report, some lawyers say the case will have a hard time making a dent in a bill passed with so much support.  Attorney Altagracia Pierre-Outerbridge, whose practice focuses on landlord-tenant litigation, called the suit’s arguments “long shots” and an “uphill fight against City Hall.”  In order to successfully block the bill from taking effect, REBNY’s lawsuit would need to prove that it would cause irreparable harm to brokers, she said.  “The First Amendment speech-restriction challenge has to overcome the fact that the law is not trying to suppress any viewpoint or idea, or force brokers to express an idea,” said Pierre-Outerbridge, “and there are other city regulations of real estate brokers, like the part of the City Human Rights Law that outlaws certain discrimination in real estate.”

The city has roughly 20 days to respond to the lawsuit. Mayor Eric Adams did not veto or sign the bill by Friday’s deadline, allowing it to automatically pass into law. Mayor Adams had previously expressed skepticism regarding the FARE Act, saying that owners could simply tack on the cost of hiring the broker to tenants on the lease.