The Real Estate Board of New York (REBNY) and other real estate industry groups have filed a lawsuit challenging the Fairness in Apartment Rentals Act (FARE), a newly passed New York City law that shifts the responsibility of paying broker fees from tenants to landlords. The lawsuit, filed in Manhattan federal court, argues that the law is unconstitutional, violates existing state laws, and will negatively impact the city’s rental market. The plaintiffs seek to prevent the law from taking effect in July 2024 as planned.
The FARE Act, passed by the City Council with a veto-proof majority, aims to address the city’s housing affordability crisis by eliminating the substantial upfront costs tenants currently face when renting an apartment, which can average up to $13,000. Proponents of the law argue that this change will make renting more accessible, while opponents, including REBNY, contend that landlords will likely pass on the broker fees to tenants through increased rents, ultimately negating any potential benefits.
REBNY’s lawsuit raises several legal arguments against the FARE Act. They claim it violates the Contracts Clause and the First Amendment of the U.S. Constitution by interfering with the freedom of parties to enter into contracts and restricting brokers’ speech by prohibiting them from advertising rental listings online without prior landlord engagement. Furthermore, they argue the law is preempted by existing state regulations. Their central argument revolves around the potential for irreparable harm to brokers and landlords, which they claim justifies blocking the law’s implementation.
Legal experts offer differing perspectives on the lawsuit’s merits. David Schwartz, a New York City trial attorney and lobbyist, believes the real estate industry has a strong case due to the constitutional arguments raised. He suggests a judge could potentially issue an injunction preventing the law from taking effect. However, Altagracia Pierre-Outerbridge, an attorney specializing in landlord-tenant litigation, views REBNY’s arguments as “long shots.” She contends that the First Amendment argument is weak because the law does not suppress viewpoints or force brokers to express specific ideas. She also points out that the government routinely passes laws that affect contract terms, especially for future contracts.
The lawsuit hinges on REBNY’s ability to demonstrate irreparable harm to brokers. This will likely be a focal point of the legal proceedings. REBNY argues that shifting the burden of broker fees to landlords will discourage their use of brokers, thereby harming the brokerage industry. The city will have an opportunity to respond to the lawsuit, likely arguing that the benefits of the FARE Act to tenants outweigh any potential harm to the real estate industry. The court will then decide whether to grant an injunction preventing the law’s implementation pending the outcome of the case.
Mayor Eric Adams, who allowed the bill to become law without his signature, previously expressed reservations about its potential effectiveness. He suggested that landlords might simply incorporate broker fees into rent increases, thereby circumventing the law’s intended purpose. This concern reflects a broader debate about the potential unintended consequences of the FARE Act. While proponents believe it will provide much-needed relief to renters, opponents worry it will exacerbate the city’s housing challenges by further driving up rental costs.
The FARE Act places New York City at the forefront of a national conversation regarding the regulation of broker fees in the rental market. While current practice in New York City allows landlords to pass broker fees onto tenants, this is unusual in most other U.S. cities. The outcome of the lawsuit will not only determine the fate of the FARE Act but could also have broader implications for similar legislative efforts in other jurisdictions seeking to address rental affordability concerns. The legal arguments raised in the lawsuit touch upon fundamental constitutional principles and raise questions about the balance between government regulation and market forces in the housing sector.
