State Supreme Court Judge Strikes Down NYC Broker Fee Ban

ALBANY—New York State Supreme Court Judge Susan Kushner issued a ruling that is being viewed as a major victory for the real estate industry, terming Department of State guidance that banned New York State apartment tenants from paying broker fees “an error of law.”

The ruling, first reported by The Real Deal, was handed down on April 9. Albany Supreme Court Judge Kushner stated in her ruling, “The guidance was issued in error of law and represents an unlawful intrusion upon the power of the Legislature and constitutes an abuse of discretion.”

Judge Kushner’s ruling also bars the Department of State from applying or enforcing any rule that would prevent a real estate licensee from receiving payment from a prospective tenant for “bringing about the meeting of the minds” between a landlord and tenant. It also permanently prevents state regulators from imposing any disciplinary action against licensees who collect broker fees from tenants.

The judge also stated in her ruling that “where the Guidance seeks to extend an unauthorized interpretation of the statute upon real estate brokers, agents, or salespersons, including discipline thereof, it is likewise an abuse of discretion.”

The DOS guidance was issued on Jan. 31, 2020 as part of a sweeping update of DOS regulations and signified a reversal of the long-standing practice where tenants pay the agent’s commission in New York City and elsewhere in New York State.

The real estate industry reacted swiftly in opposition to the new guidance and filed an Article 78 proceeding on Feb. 10, 2020 that termed the new guidance by the Department of State on brokerage commissions as “misguided” and “harmful.”

Among the plaintiffs in the case were the New York State Association of Realtors and the Manhattan-based Real Estate Board of New York and a host of major New York City residential brokerage firms, including: Bohemia Realty Group, New York Real Estate Corp., The Corcoran Group, Douglas Elliman Real Estate, Halstead Real Estate, Brown Harris Stevens Residential Sales, LLC, Sotheby’s International Realty, R New York, Kian Realty NYC, LLC, Regina Wierbowski Real Estate, LLC, Level Group Inc. and City Connections Realty, Inc. The suit charged that the DOS overstepped its legal authority and usurped its role by engaging in improper rulemaking rather than following the necessary and required legal procedures for implementing a new regulation.

A temporary restraining order on the DOS imposing those regulations was issued on Feb. 10, 2020.

2020 NYSAR President Jennifer Stevenson, when NYSAR originally filed suit against the DOS regulation, said, “The New York State Association of Realtors is deeply concerned with the regulation’s content and the manner in which it was developed and promulgated. Real estate brokers provide valuable services to the consumer and the property owners and they should be fairly compensated. These regulations will severely and wrongly impact the incomes of hard-working real estate professionals.”

Hudson Gateway Association of Realtors Chief Executive Officer Richard Haggerty said in response to Judge Kushner’s ruling, “I applaud the New York State Association of Realtors for taking such swift action and devoting the necessary financial resources in arguing for the reversal of the DOS opinion limiting who may pay real estate commissions. The court recognized that these practices should be determined by the free market and not dictated by a regulatory body.”

REBNY President James Whelan in a prepared statement released shortly after Judge Kushner’s ruling on April 9, said, “This decision ensures that thousands of hardworking, honest real estate agents across New York State can earn commissions without fear of unwarranted discipline by the Department of State based on its erroneous interpretation of the Housing Stability and Tenant Protection Act.”

At press time, the  Department of State had not indicated whether it would appeal Judge Kushner’s ruling.