REBNY Files Lawsuit to Stop NYC’s Ban on Broker Fees

While Ossé and a majority of the City Council rejoiced in passing the highly controversial bill, their joy may be brief as REBNY’s new lawsuit could overturn the broker fee ban.

The lawsuit’s plaintiffs, which include REBNY, the New York State Association of Realtors (NYSAR), and several brokerages and landlords in the city, argued the FARE Act would violate several state and federal rights, as well as lead to significantly higher rents for tenants, sources said.

“The FARE Act is bad policy and bad law,” Carl Hum, chief legal officer 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. We look forward to our day in court.”

A spokesperson for the New York City Law Department told Commercial Observer the department will “review the case once served and respond accordingly.”

Meanwhile, Ossé said in a statement that the lawsuit is a “desperate attempt” by REBNY and the other plaintiffs.

“This lawsuit is a last desperate attempt by the real estate lobby to undermine the voices of city residents and maintain an irrational practice that nearly every other big city in the country does not allow,” Ossé said. “New Yorkers deserve a rental system that works for them — not one that exploits them.”

Broker fees — which can add to the more than $10,000 in upfront costs required to rent an apartment in the city — have been a contentious topic in the city. Advocates for the ban say it ends an unfair system for rents, while the real estate industry warns it would lead to huge increases in rent.

“It costs almost over $10,000 upfront to move into a new apartment in the city, and over half of that is a broker fee,” Ossé said during a November council meeting. “Changing this law or putting this law into action and requiring that whoever hires the broker pays a fee will put money back into the pockets of New Yorkers.”

REBNY has three core arguments in its suit. First, the board claimed the FARE Act violates the First Amendment by eliminating brokers’ rights to advertise their properties on sites like StreetEasy or Zillow, effectively violating their commercial speech rights.

Second, REBNY argued the ban violates the U.S. Constitution’s Contract Clause, which prohibits cities or states from passing laws that impair the obligation of contracts. REBNY claims the FARE Act would void any existing exclusive listing agreement where a landlord requires the broker to seek compensation from the tenant.

Finally, REBNY claims the act violates New York State law, as the state itself has already enacted a set of laws and regulations governing the compensation and conduct of brokers. Essentially, the City Council does not have the authority to change the state’s system, the suit argues.

In addition to its legal claims, REBNY has argued that the broker fee ban would simply become a burden on New York City renters rather than the relief it was designed to be.

REBNY claimed the FARE Act will lead to higher rents, as landlords will likely shift the added cost of a broker fee onto tenants’ rents for market-rate units and ultimately price tenants out of apartments. However, some have countered that it would only minimally affect rent prices, and a StreetEasy report found it would curb upfront costs for renters in the city by 40 percent.

In addition, REBNY has argued the broker fee ban would reduce market transparency for those owners who can’t afford to pay brokers. In those cases, renters would lose access to broker services such as quality photos of apartments, in-person tours or application paperwork support.

A ban on broker fees would also leave smaller landlords with the difficult decision of raising rents or deciding not to raise rents and therefore cutting back on helpful services and maintenance, sources said.

Once REBNY files for a preliminary injunction and that injunction is in place, the FARE Act cannot be enforced while litigation is ongoing, sources said.

Other plaintiffs involved in REBNY’s case include Bohemia Realty Group, Bond New York, Level Group, REAL New York and Four Corners Realty, according to the suit.

But the lawsuit’s plaintiffs don’t expect Ossé and the City Council to just sit tight. In response to the lawsuit, Ossé will likely argue that the broker fee ban is intended to help New York City’s current housing emergency and align the principal-agent relationship, sources said.

And the bill would put the city aligned with much of the country where landlords cover the broker fees for rentals. The practice of renters covering the fee came into play decades ago when brokers were the main people listing apartments in various newspapers and fielding calls, but that’s changed as most tenants turn to websites like Zillow or StreetEasy to find a place, according to the New York Times.

This isn’t the first time a broker fee ban has been introduced in New York City and fought by REBNY.

In 2020, a tenant protection law prohibiting brokers hired by landlords from charging tenants passed through the legislature, but REBNY challenged the law, and the ban was overturned in state court in 2021, The City reported.

It remains to be seen how REBNY’s new lawsuit plays out, but it might have support from some of New York City’s biggest names, including Adams, who has previously expressed concerns about the ban and said it could harm property owners and consumers alike.

Isabelle Durso can be reached at idurso@commercialobserver.com.