Broker’s fees are back on—at least until June.
A judge has temporarily blocked a polarizing new rule issued in February by New York’s Department of State, which declared that prospective tenants would no longer be required to pay the often hefty broker’s fees that are par for the course when applying for apartments. That temporary restraining order, filed in Albany County Supreme Court, has barred the DOS guidance from going into effect. Now, that uncertain future has been prolonged for another three months. On Friday, New York Attorney General Letitia James requested an extension to respond to the real estate industry’s challenge until May 1. The next court date is set for June 12.
The ruling, issued by justice Michael Mackey, comes after the Real Estate Board of New York and other industry power players (including a handful of big-name brokerages, such as Corcoran, Brown Harris Stevens, and Douglas Elliman) filed a lawsuit against DOS, charging that the agency “usurped” the state legislature and “engaged in unlawful rulemaking” when its officials issued the February 4 guidance. Opponents of the rule change praised the temporary block as a win for the city’s more than 25,000 licensed real estate brokers.
“[This restraining order] means that thousands of hardworking, honest real estate agents across New York State can do business in the same way they did prior to [February’s] DOS memo without fear of discipline by the DOS,” REBNY President James Whelan and New York State Association of Realtors President Jennifer Stevenson said in a joint statement.
The DOS guidance, issued as a clarification to the pro-tenant rent reforms that went into effect in 2019, all but banned the practice of asking apartment-seekers to pay a broker’s commission. It states that the fees brokers have typically passed on to renters would have to be paid by landlords, unless the prospective tenant hired the broker themselves.
But in the legal challenge, the real estate industry argues that DOS had overstepped its bounds and violated procedural norms by not consulting industry insiders and the public before issuing the bombshell clarification. The lawsuit also argues that agents are not specifically mentioned in the language of the law and that state regulators made a presumptuous jump by applying the change.
“If the Legislature had intended to have the law apply to real estate brokers or agents, it certainly could have included that language in the new provision,” reads the lawsuit. “The Legislature, however, did not include such language, and the DOS erroneously inserted such language in its response.”
Other legal challenges are also in the works. Jerry Leazer, a broker with real estate firm Apartment Experts, said he planned to file his own state lawsuit against the new guidance. He summarized his argument using a baseball analogy: “[State regulators] threw the ball to the first baseman and the first baseman didn’t have his foot on the bag. This is a wide stretch from the law that was passed.”
DOS did not immediately return a request for comment.
Kenny Schaeffer, a housing attorney with The Legal Aid Society and a member of tenant advocacy group the Met Council on Housing, believes the state’s guidance will be upheld. He stressed that eliminating tenant broker’s fees will lift a tremendous burden on low-income families who can barely afford their rents let alone the variety of fees associated with moving.
“Low-income tenants who have to move just can’t cough up that kind of money,” Schaeffer told Curbed. “This interpretation of the law is a perfectly appropriate response of a democracy trying to protect the people who need protection.”
In a recent email to its members, REBNY noted that brokers “can collect a commission from a tenant until further notice,” and could do so “without fear of discipline by the DOS.”
Amy Plitt contributed reporting to this story.