The Real Estate Board of New York is asking a federal appeals court to suspend New York City’s new broker fee rules, arguing that every day the law remains in effect, it inflicts “irreparable harm” on residential brokers and landlords.
The trade group filed a brief Thursday with the Second Circuit, laying out why the court should issue a preliminary injunction pausing the Fairness in Apartment Rental Expenses, or FARE, Act.
The law, which went into effect in June, bars rental brokers hired by landlords from collecting fees from tenants. It also specifies that a broker who publishes a listing with permission from a landlord should be viewed as working for the landlord, and that renting an apartment cannot be contingent on a tenant hiring a specific broker.
REBNY’s previous attempt to stop the law in its tracks failed. The trade group hopes the Second Circuit will find that the lower court was wrong to deny its previous preliminary injunction and in its dismissal of most of REBNY’s claims challenging the FARE Act.
The city, meanwhile, argues that a reversal of the law, at this point, would spell “chaos.”
Just one day before the law went live, Judge Ronnie Abrams, of the U.S. District Court for the Southern District of New York, rejected REBNY’s request for a preliminary injunction to halt the measure and dismissed the bulk of the trade group’s claims. Abrams held that REBNY simply viewed the FARE Act as “bad policy,” but failed to show that it violated the First Amendment or was preempted by state law.
She acknowledged that the law could wrongfully interfere with existing contracts between landlords and brokers, but concluded that REBNY’s lawsuit was not likely to succeed.
REBNY argues that the judge seems to have “gotten turned around” on a number of points.
In its lawsuit, the group claims that the FARE Act’s bar on tenant-pays open listings — an arrangement where a landlord allows multiple brokers to advertise a listing, with the understanding that the broker who procures a tenant will receive a fee from that tenant — unconstitutionally restricts speech and “disfavors specific speakers,” in this case, brokers.
The complaint alleges that the City Council shifted its justification for the law between saying it would increase housing mobility and arguing it aligned the “principal-agent relationship in the rental market.” REBNY maintains that city officials have failed to show that the law does either.
The brief asserts that the lower court should have considered that the city could have achieved its stated goal of ensuring that brokers are paid by the party that employs them by passing an earlier version of the bill that did not include the restrictions on publishing listings. Of course, REBNY also alleges that the bar on brokers collecting fees from tenants in open-listings tenant-pays deals violates the Contracts Clause. The point, though, is that the judge should have addressed the idea of passing a less restrictive law, the brief states.
“If the government is going to abrogate First Amendment-protected commercial-speech rights, it needs to show—not just claim—that its restriction directly and materially advances a substantial government interest, and that the government could not accomplish its goals as effectively without restricting speech or by restricting less speech,” the group’s attorneys write. “Defendants cannot meet that burden here.”
The trade group also takes issue with Abrams’ determination that listings are “content neutral,” pointing to a half-century-old Supreme Court decision regarding real estate “for sale” signs. In that case, the court found that a New Jersey township’s bar on such signs violated the First Amendment because it was targeting the content of the signs, similar to how the FARE Act targets rental listings, REBNY contends.
In addition, REBNY claims the law imperils brokers’ businesses, drives up rents and will lead owners of rent-stabilized apartments to warehouse their units or forgo maintenance to make up for the added cost of covering broker fees.
In a brief filed July 21, attorneys for the city warned against halting the FARE Act.
“Lurching back to the old system now—after the law has been in place for over a month, and tenants and brokers alike have relied on it—would create chaos,” the brief states. “And plaintiffs’ dire assertions about the FARE Act’s effects are either demonstrably incorrect or amount to mere policy objections. Plus, plaintiffs have not shown any irreparable harm.”
The city asserts that the FARE Act doesn’t “bar the publication of anything by anyone,” but sets ground rules for listings published with the blessing of a landlord.
“Brokers are still free to advertise any listing they like, and landlords are free to retain brokers to list their apartments,” the city’s brief states. “The provision thus does not even implicate the First Amendment.”
REBNY is appealing the District Court’s dismissal of its First Amendment claims, but leaving the dismissed state preemption claims be, for now. A ruling in its favor would mean the case will continue before Abrams. If the appeal is rejected, REBNY could petition the Supreme Court.
