Judge rejects bid to block NYC broker fee reform

A federal judge on Tuesday refused to block a landmark New York City law that will shift responsibility for paying broker fees from renters to landlords — clearing the way for the Fairness in Apartment Rental Expenses (FARE) Act to take effect on Wednesday.

U.S. District Court Judge Ronnie Abrams denied a request by the Real Estate Board of New York (REBNY), the New York State Association of Realtors and several brokerage firms for a preliminary injunction that would have halted implementation of the law while their legal challenge proceeds.

“Plaintiffs’ discontentment with the Act stems not from its effects on their constitutional rights, but from a fundamental disagreement with its underlying policy,” Abrams wrote in her ruling. “The law is clear, though, that whether the legislation is wise or unwise as a matter of policy is a question with which (the Court cannot be) concerned.”

The ruling marks a significant blow to the real estate industry’s effort to derail the policy and a major victory for tenant advocates.

“This has been years in the making,” said Allia Mohamed, CEO and co-founder of openigloo, a New York-based rental platform. “The premise is, whoever hires the real estate broker is responsible for paying this broker fee.

“From our perspective, the best thing to happen is for it to go into effect tomorrow. Renters need immediate relief when it comes to their apartment hunt in New York City.

“It’s going to save renters thousands of dollars upfront. It’s going to give them that freedom of movement and flexibility to actually move apartments if they want. This is a freedom and a liberty that New York City renters have not had.”

Under the proposal, landlords or brokers who charge a tenant without a prior agreement would face a $750 fine for a first offense, $1,800 for a second offense and $2,000 for each subsequent violation.

Additional penalties include $750 for failing to clearly disclose all tenant fees in listings and $375 for not providing an itemized list of charges.

Opposition to reform

Under long-standing practice in New York City, tenants are often required to pay broker fees — even when the broker was hired by the landlord. These fees can range up to one to two months of rent, making moving prohibitively expensive for many renters.

The FARE Act seeks to change that by aligning payment responsibility with the party that hires the broker.

Opponents of the law — including REBNY — argue that the costs will be passed along to renters in the form of higher rents.

“New Yorkers will soon realize the negative impacts of the FARE Act when listings become scarce, and rents rise,” REBNY President James Whelan said in a statement provided to Bloomberg. “We will continue to litigate this case as well as explore our avenues for appeal.”

REBNY and several brokerage firms filed a lawsuit in December seeking to block the measure — just days after it passed a New York City Council vote with overwhelming support. REBNY previously led a successful 2020 legal fight against a similar broker fee ban.

Mohamed pushed back against opposing narratives, saying they amount to “fear mongering.”

“I think the most common rebuttal is that it’s going to cause rents to skyrocket,” she said. “The way that I interpret that rebuttal is it’s a bit hyperbolic, because they think that landlords are just going to pass along the costs on to renters.

“My counter argument to that counter argument is supply and demand and market conditions is what dictates prices on apartments, not what landlords’ costs are.”

She also cited New York City’s rent regulations as a limiting factor on rent increases.

“Nearly 50% of the housing stock is rent stabilized, meaning there are legal caps on what can be charged,” Mohamed said. “That eliminates almost half of the housing from being able to actually pass those costs through.”

Even in the market-rate sector, Mohamed noted, landlords face pricing pressure.

“Those landlords need to keep their inventory competitive with the rent-stabilized inventory,” she said. “So it can’t be super out of step, or they’re not going to be able to fill their units fast enough.

“Even if some of the costs are passed through, our argument and position is it’s still better off for renters for them to pay a $20 or $30 rent increase, as opposed to having to find $10,000 upfront to be able to move into a new apartment.”

Renter ramifications

According to data from openigloo, around 70% of renters had postponed their apartment searches in anticipation of the FARE Act. Mohamed believes the judge’s decision will now provide clarity and momentum for these individuals.

The lawsuit opposing the legislation will continue, but for now, the law will stand.

Mohamed hopes that the decision will shift the conversation toward constructive policy solutions rather than prolonged legal battles.

“What I would love to see happen is for the brokerage community to come together, express their concerns and their fears in a solutions-oriented way,” she said. “This broker fee has been put on the renter, moments where the renter didn’t necessarily want those services or even get the services that they should have gotten.

“It’s paying a fee to an agent who represents the landlord’s interest. And that is not a healthy market in any type of city. At the end of the day, New York City is one of the most challenging, expensive, broken housing markets in the country — if not the world — and we really welcome creative solutions from policymakers who are trying to make people’s lives better.”