LEGAL CORNER: NYC Passes the FARE Act and Restricts the Payment of Commissions by Tenants

On Nov. 13, 2024, the New York City Council passed the “Fairness in Apartment Rental Expenses Act” (FARE Act) [see Introduction Bill No. 360-A at https://on.nyc.gov/3Zgcl7W]. The FARE Act will require any individual who engages a real estate agent in a residential real estate rental transaction to be responsible for paying that agent’s fees. Landlords will no longer be permitted to charge broker fees to tenants for the landlord’s broker. It has long been the custom in New York City for tenants to pay the broker’s fee in connection with a lease, even if the broker was engaged by a landlord. The FARE Act will go into effect 180 days after it becomes law.

Proponents of the FARE Act

The City Council passed the FARE Act by a 42-8 vote, which makes the legislation veto-proof and able to withstand any potential veto by Mayor Eric Adams. The legislation requires that landlords, rather than tenants, pay any broker fees when the broker represents the landlord’s interests. Those who voted in favor of the legislation argue that it brings New York City in line with standard practices observed in other parts of the country, where landlords typically cover broker fees. Councilmember Chi Ossé, the bill’s sponsor, emphasized that the legislation aims to address the city’s housing crisis by eliminating what he described as a “cruel and archaic” practice. The proponents of the FARE Act believe that it will significantly reduce housing costs, thereby increasing housing availability and accessibility to more affordable housing.

Opponents of the FARE Act

The real estate industry has expressed concerns regarding the potential repercussions of the FARE Act. Critics, including the Real Estate Board of New York and the New York State Association of Realtors, warn that landlords will likely offset the additional costs by increasing monthly rents, which will inevitably lead to higher costs and will negatively affect the intended benefits for tenants. According to The Real Deal [see https://bit.ly/3ZchBJQ], REBNY’s President, Jim Whelan, stated that “REBNY will continue to pursue all options to fight against this harmful legislation on behalf of our members and the renters they serve.”

NYSAR, in its Call-For-Action – Stop the FARE Act [see https://bit.ly/3CKKTq6]—urged its members to contact their local Council Members and urge them to “vote NO on this misguided legislation that threatens brokers’ livelihoods, lead[s] to increased rents, and limit[s] housing access.” NYSAR pointed out that “this legislation will undoubtedly lead to higher rents for tenants and limit housing access.” NYSAR also points out that the FARE Act will:

• Restrict Dual Agency;
• Empower New York City agencies to issue fines on real estate licensees and landlords;
• Assume that any broker advertising an open listing rental unit works for and is being paid by the landlord;
• Allow a tenant to sue a broker over a purported violation;
• Would prohibit landlords from paying the fee for a tenant’s broker, and
• Result in higher rents for tenants.

In a New York Post article [see https://bit.ly/4hTwLLx], it was reported that “Mayor Eric Adams also expressed skepticism about the legislation, suggesting to reporters… that there was nothing preventing a property owner from passing on the expense to the renter on the lease.” The Associated Press also pointed out that Mayor Eric Adams, who was also formerly a real estate broker, “has raised concerns about the legislation and possible unintended consequences.” According to the AP, Mayor Adams was quoted as stating that “sometimes our ideas are not fleshed out enough to know what are the full long-term ramifications.”

The Basic Requirements & Restrictions of the FARE Act

Liability of Landlord and Landlord’s Agent

Landlord’s agents, under Subsection a.1. of Section 20-699.21 of the FARE Act, are expressly prohibited from “impos[ing] any fee on, or collect[ing] any fee from, a tenant related to the rental of residential real property….” Subdivision a.2. also prohibits “any agent who publishes a listing for a rental of residential real property with the permission or authorization of the landlord for such property” from imposing or collecting a fee from a tenant.

The FARE Act also extends liability to a landlord under subsection b. if “1. a landlord’s agent of such landlord violates such subdivision [a]; or 2. any agent who publishes a listing for a rental of residential real property with the permission or authorization of such landlord violates such subdivision.” Additionally, under subdivision c. a landlord and landlord’s agent are prohibited from making it a condition of any rental agreement that a tenant engage any agent, including a dual agent. Again, this would restrict the use of dual agency, which is expressly permitted by New York State law.

Rebuttable Presumption: Posting of A Listing for Residential Real Property

Subdivision d. provides that “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.” Under subdivision e. “There shall be a rebuttable presumption that an agent who publishes a listing for a rental of residential real property does so with the permission or authorization of the landlord of such property.” Therefore, if an agent lists a property and that agent is not working for nor has been engaged by a landlord, the law presumes that the agent is doing so with the authorization and/or permission of the landlord. The onus would then be on the landlord to establish that the agent did not act with the permission or authorization of the landlord.

Expansive Definition of Residential Real Property

The FARE Act defines “residential real property” as any “dwelling unit, as defined in paragraph 13 of subdivision a of section 27-2004, including a dwelling unit held in the condominium or cooperative forms of ownership.” It is important to note that Section 27-2004, subsection a, paragraph 13 of the NYC Housing Maintenance Code [see https://bit.ly/3Vo1qHl] includes in the definition of a “dwelling unit” as an “accommodation in a multiple dwelling or private dwelling.” In essence, the FARE Act applies to all forms of real property (i.e., private dwellings consisting of 1-2 family dwellings as well as multiple dwellings consisting of three or more families).

“Total Fee Disclosure” to a Tenant

Section 20-699.22 further requires that all fees be disclosed to a tenant in advance in any listing for the subject property. Under subsection a. “[e], every listing related to the rental of residential real property shall disclose in such listing in a clear and conspicuous manner any fee to be paid by the prospective tenant for the rental of such property.”

Therefore, all fees must be disclosed in a “clear and conspicuous” (e.g., bold type font, italicized, etc.) manner in the listing.

Subdivision b. further requires that “Prior to the execution of an agreement for the rental of residential real property, the landlord or landlord’s agent shall provide to the tenant an itemized written disclosure of any fees that the tenant must pay to the landlord or to any other person at the direction of the landlord in connection with such rental.” It is also important to note that any fees are subject to the restrictions relating to the fees a landlord may charge under subdivision 1 of Section 238-a of the Real Property Law, which was passed in 2019 as part of the Housing Stability and Tenant Protection Act [see https://bit.ly/4eG7jX4].

The written disclosure must include “a short description of each fee” being charged and the tenant must sign the written disclosure before signing any lease or rental agreement for the residential real property. The landlord or landlord’s agent is also required to retain the signed and written disclosure for three (3) years and shall also provide a copy to the tenant.

Tenant’s Private Cause of Action, Liability and Penalties of Landlords and Agents

Under Section 20-699.23 of the FARE Act, any person who violates the provisions of section 20-699.21, with respect to the fees charged to a tenant, will be subject to a civil penalty of up to $1,000 for the first violation, and not more than $2,000 for any subsequent violation that occurs within a two-year period. If any person violates the provisions of section 20-699.22, relating to the required written disclosures, that person will be subject to a civil penalty of up to $500 for the first violation and not more than $1,000 for each subsequent violation occurring within a two-year period.

The Department of Consumer and Worker Protection would be responsible for enforcing the provisions of the FARE Act. In any proceeding, the DCWP may seek an order imposing all applicable civil penalties authorized by the FARE Act and it can also require restitution of any impermissible fees charged by a landlord or landlord’s agent.

Additionally, Section 20-699.24 also allows a tenant the right to commence a private cause of action against a landlord or landlord’s agent. Any person alleging a violation of this subchapter may “file civil action, in accordance with applicable law, in any court of competent jurisdiction. Such court may order compensatory, injunctive and declaratory relief.”

The Effects of the FARE Act on the Real Estate Market In NYC

As the FARE Act moves toward implementation, stakeholders will closely monitor its impact on the rental market, housing affordability, and the dynamics between landlords, tenants, and real estate professionals. The legislation represents a pivotal shift in New York City’s approach to rental transactions, with the potential to influence housing policies beyond New York City. The Commissioner of the DCWP is required to establish an outreach and education campaign for real estate brokers, agents, tenants, prospective tenants and other members of the public who may be affected by the FARE Act. While there is still some time before the FARE Act goes into effect, brokers, agents, landlords and tenants need to be prepared for its implementation. One thing is clear, there will likely be opposition to the FARE Act in the coming months by those who firmly believe that this will hurt, rather than help, the market and prospective tenants.

Legal Column author John Dolgetta, Esq. is the principal of the law firm of Dolgetta Law, PLLC. For information about Dolgetta Law, PLLC and John Dolgetta, Esq., please visit http://www.dolgettalaw.com. The foregoing article is for informational purposes only and does not confer an attorney-client relationship and shall not be considered legal advice. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views or positions of HGAR, its affiliates, or any other entity.