Rental broker commissions in New York will live to see another day.
On Monday, a judge issued a temporary restraining order for a rule that would shift the burden of paying the fees from tenants to landlords. The restraining order came as the Real Estate Board of New York (REBNY) and area brokerages filed a lawsuit to stop the new rule — which was unveiled last week and was widely described as a “ban” on the commissions brokers collect from people trying to rent apartments.
The rule ignited outrage from members of the real estate community who said it would upend their ability to make a living, though it was also praised by some renters. In the days after officials announced the regulation, REBNY and other real estate organizations also announced their intention to sue.
They made good on that threat Monday, filing a petition with the court that describes the rule’s impact as “immediate and devastating.” The petition also accuses the New York Department of State — the agency responsible for the rule and now the defendant in the suit — of usurping the role of the legislature and committing an “illegal exercise of legislative power.”
Ultimately, the petition asks the court to toss the rule out.
The verdict of the case, and whether or not the rule lives or dies longterm, remains to be seen.
But in the meantime, REBNY praised the temporary restraining order, saying in a statement Monday that it “means that thousands of hardworking, honest real estate agents across New York State can do business in the same way they did prior to last week’s DOS memo without fear of discipline by the DOS.”
“We look forward to ultimately resolving this matter in Court in the weeks ahead,” the statement adds. “Meanwhile, we appreciate all of our members’ support and vigilance during this period of upheaval and confusion.”
The polarizing new fee rule came amid a flurry of ostensibly pro-tenant reforms in New York. The reforms made the state’s rent regulation laws permanent, repealed provisions that allowed for the removal of affordable units, and reduced landlords’ ability to raise rents on vacant units, among other things.
The new broker commission rule was part of a new guideline for those reforms.
New York’s efforts have also been part of a growing interest in tenant protections, some of which — such as rent control — are viewed skeptically by certain economists.
New York also has a unique rental landscape; unlike much of the U.S. where people find available units on websites like Craigslist or Zillow, renters and landlords in New York typically work with and are connected by agents. Those agents charge a fee, which is sometimes a percentage of an entire year’s worth of rent.
The fees can, as a result, become a significant burden for renters themselves, though an agent has to pocket a significant number of them in order to make a living.
The new rule didn’t exactly ban such fees. Instead, it merely said that tenants could no longer be the ones paying for the landlord’s agent.
In its lawsuit, REBNY and other parties said the rule’s unveiling consequently caused significant confusion.
“Prospective tenants started backing out of their agreements to pay the procuring brokers their commissions, tenants who had already paid broker fees began demanding the return of already paid commissions, and brokers feared they would be the subject of complaint and discipline from the DOS unless they stopped accepting commissions, despite having procured the transaction and duly earning the commissions,” the petition states.
Meanwhile, Gothamist reported on Friday that some brokers had refused to acknowledge the new rule and renters were in some cases still being charged. The piece spoke with multiple people who were aware of the rule, but were nevertheless told they still had to pay the landlord’s broker fee.
The new restraining order should return the situation to its long-standing status quo in the short-term, though lawyers will still have to hash out a final outcome in court.
The New York Department of state did not immediately respond to Inman’s request for comment Monday.
However, the various parties in the case are now set to appear in court on March 13.