The bill to end forced broker fees finally became law last week (no thanks to Eric Adams, who declined to sign it). And as expected, the Real Estate Board of New York sued. On Monday, the real-estate interest group filed a suit arguing — interestingly enough! — that the FARE Act violates brokers’ First Amendment rights.
How? Per their claim, the law infringes on commercial free speech because it makes it “illegal for brokers to ‘publish’ an apartment listing and then seek to receive compensation from a tenant,” thus inhibiting brokers from “advertising open listings” — an arrangement where multiple agents post a listing to bring potential tenants to a landlord, even though they weren’t explicitly hired by that landlord. (This kind of thing often means the tenant pays the fee.) The suit also claims the law violates the Contracts Clause in the Constitution by voiding certain contracts that involve tenant-pays fee agreements and that it’s preempted by state law. Finally, the suit claims, it will make everyone feel bad! “The net effect of the FARE Act will not only be angry brokers and landlords, but, most of all, angry consumers.”
To make sense of all of this, we reached out to Roderick Hills, a law professor at New York University who focuses on constitutional and local government law. We asked him whether he thinks REBNY’s lawsuit holds any water and what it might mean for the bill going forward.
This interview has been edited and condensed for clarity.
What do you think about the suit?
This is a kind of argument that you give students on a final exam to show why it’s wrong. It doesn’t really make any sense. But it’s not frivolous. And the beauty of this is REBNY doesn’t need to care whether they win — they have enough money that they can try to throw in a speed bump.
So you think they may want to delay the law?
Even though a lawsuit might not prevail, a district court might give REBNY a preliminary injunction, and that would slow the law down. And that would be months and months of charging brokers fees — that’s worth a lot of money.
Got it. So let’s get into the actual arguments. First, they’re saying that the FARE Act violates commercial free-speech law. If I’m understanding this right, it’s because they can no longer post listings if they weren’t hired by the landlord?
The argument I take REBNY to be making is not that a broker cannot advertise a listing but that brokers are unlikely to do so knowing that tenants will not be willing to pay for the service. But in any case, nothing in the text of the bill supports the idea that brokers are directly prohibited from publishing whatever they want to publish. It’s true that one section says, “No person shall post a listing for the rental of residential real property that represents that fees must be paid in a manner that would violate this section.” But so what? That just says, don’t lie.
So the suit claims the law “inhibits brokers from advertising open listings where they are not retained and paid by the landlord.” What you’re saying is that brokers can post whatever they want, but they can’t misrepresent what the law says, which is that the person who hires the broker pays the broker. And as for anything else, it’s up to brokers if there’s a financial incentive for them to take on an open listing because they weren’t hired by the landlord, meaning they might not get a fee from anyone.
Yeah, they are talking up their theory as best they can, but the law here doesn’t say what they claim it says. “Inhibits” is a nicely ambiguous word for the plaintiff’s purposes.
That’s making more sense to me now.
The second thing is that nothing in this law bars brokers from saying anything they want in their advertisements. If they want, they can say, “If you get this apartment, you have to pay us a million dollars.” This law doesn’t prevent that — a different law prevents that. If you demand payment from someone who doesn’t owe it to you and you make some argument that it’s required by a law, you might be sued for fraud.
What about REBNY’s claim that the law also violates the Contracts Clause of the Constitution? If a contract exists but has illegal terms — asking the tenant to pay a broker they didn’t hire — does it violate the Contracts Clause to say that contract is void?
Imagine a building owner hires a cleaning service but they say to the cleaning service, “We want you to pay your janitors less than minimum wage.” That contract is illegal. Minimum-wage laws can be enforced, and you can’t contract your way out of them. So all this says is that the party who hires a broker has to pay the broker. You might say, “Oh, well, we don’t like that because we want to make a contract that says somebody else will pay the broker.” Well, you might want to make a contract that says you can only pay somebody 50 cents an hour. So what?
Their last argument is that this city law would be preempted by state law that governs brokers.
That’s their best argument. It’s not a frivolous argument, and I can see a judge scratching their heads. I don’t think that the city could, for example, regulate the licensing of real-estate brokers. But saying that you can’t regulate what tenants are charged — I think it’s harder to say that there’s preemption there.
Why?
In general with preemption, the further the state law gets from what the local law’s addressing, the harder it is to make an argument for it. And this is pretty far out because it’s about what landlords are charging and what tenants are paying, which actually doesn’t regulate brokers at all, strictly speaking. It has effects on brokers, but that’s true of a lot of laws — zoning laws have an effect on brokers.
So what state law are they leaning on?
The lawsuit cites a state agency rule about compensation that says, “A real estate broker shall make it clear for which party he is acting and he shall not receive compensation from more than one party except with the full knowledge and consent of the broker’s client.” So you have to disclose stuff. It basically says, make it clear and make sure that everything’s with full knowledge and consent of the broker’s client. But does it say that they must be able to receive compensation from the lessee rather than the lessor? No.
How do you think that will hold up?
Is there a chance the district court judge will find preemption? Maybe. But I give it very low odds.
So it’s a long shot, but a shot they’re willing to take if it means delaying or getting around the new law.
I would call it a lottery ticket. It’s no dumber filing this lawsuit than going into a bodega to buy a lottery ticket, hoping you get at least your money back.
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