Real Estate Groups to Challenge Ban on Broker Fees for Renters

Real estate agents in New York have raced this week to make sense of a new, far-reaching rule declaring that tenants no longer have to pay a broker’s fee.

On Friday, two of the state’s most influential industry groups said they would challenge the rule in court.

The Real Estate Board of New York, the powerful lobbying organization, said it would file a lawsuit on Monday accusing the New York Department of State, which issued the legal guidance, of abusing its authority and failing to follow the proper steps before adopting a new rule.

“We are asking the court to recognize that the Department of State illegally overstepped its role in issuing its new guidance on rental brokerage commissions,” said James Whelan, the group’s president. “The announcement of this new rule without warning has caused widespread confusion and havoc among dedicated real estate agents and the clients they serve.”

A spokeswoman at the Department of State did not immediately respond to a request for comment.

The Real Estate Board, which represents major developers, property owners and brokers in New York City, will be joined in the lawsuit by the New York State Association of Realtors, a statewide organization with nearly 60,000 brokers.

In the lawsuit, the groups are expected to accuse the Department of State of failing to follow a state act that spells out how agencies are expected to issue rules and regulations.

The two groups said that the Department of State, before issuing the guidance, should have sought input from the real estate industry and presented it for review before the state’s Board of Real Estate.

The state published the legal guidance on Tuesday night, stunning the real estate industry by saying that last year’s sweeping rent laws, which do not explicitly mention broker commissions, barred tenants from having to pay a broker’s fee.

In New York City’s competitive rental market, tenants are often required to pay a fee, sometimes up to 15 percent of the annual rent, to a broker even if they found the apartment on their own by using websites like StreetEasy and Craigslist.

The Department of State said that a broker can still collect a fee but it must be paid by the landlord unless the tenant hired them to help find a unit.

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