New York State Attorney General Letitia James and a key state agency are coming to the city’s defense in its battle with the Real Estate Board of New York over last year’s law that shifts the responsibility for broker fees from tenants toward landlords.
In a Friday filing, James’ office backed up the city’s argument that the so-called Fairness in Apartment Rental Expenses Act does not run afoul of state law. The lawsuit, filed in December by REBNY and several brokerage firms, argued that only the state has the power to regulate brokers’ pay.
But the attorney general’s office, joined by the Department of State, wrote that a judge should dismiss the section of REBNY’s lawsuit that relies on that argument. In a 20-page brief, they wrote that the state laws regulating brokers’ licenses do not conflict with the city’s attempt to change the fees. They said the state has “a strong interest in ensuring that state law is not improperly interpreted to invalidate tenant-protective local laws like the FARE Act.”
“Rules about broker fees do not necessarily require statewide uniformity,” state officials wrote. “The FARE Act seeks to combat a problem specific to the rental housing market in New York City, where, unlike in almost every other American city, landlords routinely pass the fees charged by brokers who are representing the landlords’ interests onto tenants.”
The FARE Act is scheduled to take effect June 14 unless REBNY can persuade Manhattan District Court Judge Ronnie Abrams to issue an injunction delaying it. The bill was approved by the City Council in a lopsided 42-8 vote and lapsed into law after Mayor Eric Adams — who had expressed concerns about the act — declined to veto it, given the likelihood that lawmakers would override his veto.
REBNY President Jim Whelan said in a statement that the Board would review the filing, adding, “We remain confident with our legal arguments and look forward to our day in court.”
The Department of State, which signed onto the brief with James’ office, is the state agency that oversees brokers’ licenses. The city’s Law Department, which represents both the mayor and the City Council and defends the city against lawsuits, declined to comment on the state’s brief.
The state has no obligation to get involved in lawsuits where one party alleges that a local policy is “preempted” by state law, said Roderick Hills, a constitutional law professor at New York University Law School. He said that means that the attorney general’s office is choosing to back up the city’s interpretation of the law.
“If the AG says, ‘We’re weighing in on the city’s side,’ it means that Tish James basically is taking the position that this is a cause she believes in and that they’re willing to take a position on a preemption issue,” Hills told Crain’s.
James’ office said it takes no position on the other two arguments in REBNY’s lawsuit. The suit claims that the FARE Act violates brokers’ First Amendment rights by deterring them from posting “open listings” — properties where they were not exclusively hired by the landlord — since brokers would face penalties for charging fees whether or not the owner had hired them. It also alleges that the law violates the Constitution’s Contract Clause by voiding existing agreements in which landlords expect brokers to seek fees from tenants.
Whelan has told Crain’s he’s confident in REBNY’s chances of prevailing. The Board came out on top in a previous 2021 court case, when it sued to block a state regulation that briefly banned broker fees — although its arguments in that case have little in common with its FARE Act complaint.
Hills, the NYU professor, said he thinks REBNY’s case is weak. Their constitutional claims are unlikely to hold up, he said, and the argument that state law preempts the FARE Act would only be relevant if the state were already regulating the exact same fee issue, as opposed to simply regulating brokers broadly.
“You have to show that the state Legislature thought about the particular issue and affirmatively didn’t want the city to weigh in on that issue,” he said. “They haven’t made any showing like that.”
The city’s attorneys said as much in their Feb. 28 motion to dismiss the lawsuit, writing that the state’s Real Property Law is “devoid of any express or implied intent to occupy the field of real estate brokers’ fees.”
REBNY’s co-plaintiffs include the brokerage firms Bohemia Realty Group, Bond New York, Level Group and Real New York, as well as the New York State Association of Realtors. The plaintiffs’ next filing, a response to the city’s motion to dismiss the case, is due April 11.
James’ office recently came to the city’s aid on another hot-button topic: Last summer, the attorney general backed the city in a lawsuit defending the building-emission policy Local Law 97, arguing against a suit by landlords who say the city climate law contradicted state policy.
