The Real Estate Board of New York took a legal drubbing in its bid to bust the city’s apartment broker fee bill.
A federal appeals court has quashed the board’s effort to revive key claims in its battle against the Fairness in Apartment Rental Expenses, or FARE, Act, Crain’s New York reported.
The U.S. Court of Appeals for the Second Circuit affirmed a lower court’s dismissal of two claims that the FARE Act violates the First Amendment of the U.S. Constitution and is preempted by state law.
The court also backed the lower court’s rejection of the board’s request to prevent the law from going into effect while its lawsuit crawled through the courts.
“We are disappointed by the appellate court decision and will explore pathways to continue our legal challenge against this misguided law,” REBNY President Jim Whelan said in a statement.
The decision is the latest defeat for the lobby organization in its uphill battle to overturn the law. The City Council passed the FARE Act to cut renters’ upfront moving costs — namely the real estate broker fee, which typically comes to about 15 percent of the yearly rent.
The law, which went into effect in June of last year, requires anyone who hires rental brokers to pay their fee, effectively shifting costs from tenants to landlords in many deals.
While its supporters cite reduced upfront costs for renters as proof of the law’s success, REBNY continues to challenge the act, claiming it has contributed to tighter inventory, higher rents and confusion among landlords, brokers and tenants.
Its lawsuit against the city claimed the law restricted broker speech by discouraging them from posting listings because, under the FARE Act, publishing a rental listing signals that a broker was hired by the landlord.
That ignored that brokers aren’t exclusively hired for open listings, argued the trade group.
The complaint also alleged the law was preempted by the state and that it violated private contracts.
Before the law went into effect, a federal court judge dismissed the free speech and state law claims, but left the federal contracts clause claim intact. The judge said it was an open question as to whether the law “was a reasonable and appropriate means of advancing the City Council’s interests” to justify intrusion on existing broker contracts, according to Crain’s.
REBNY appealed the dismissals, which the appeals court affirmed this week. The board’s claim against existing contracts remains, which applies to tenant-pays listing agreements signed before Dec. 13, 2024, and remained active after the FARE Act went into effect.
A year after New York City’s broker fee overhaul took effect, the law has generated a stream of complaints, enforcement actions and tenant reimbursements, The Real Deal previously reported.
As of last month, the city received more than 2,000 complaints, leading to 74 summonses for violations, about $27,000 in penalties and $15,000 in broker-fee refunds for renters.
– Dana Bartholomew
Read more
FARE Act generates thousands of complaints, tenant refunds in first year
FARE Act, one year later: Here’s how the broker fee law has played out
FARE Act adding to “landlord strangulation,” one owner says
