Real estate leaders in New York City filed a lawsuit on Monday seeking to halt a new law that would shift expensive broker fees from renters to landlords.
The broker fee bill became law on Friday after Mayor Eric Adams neglected to sign or veto it within 30 days as required. The new rules approved by the City Council prevent renters from being forced to pay broker fees that can cost thousands of dollars.
The lawsuit was filed in Federal District Court in Manhattan by the Real Estate Board of New York, an influential industry lobbying group. It argues that the law is unconstitutional and that it will lead to higher rents.
“It will wreak havoc on the New York City rental markets and unleash a host of unintended consequences, causing immediate and irreparable harm to the consumers it purports to protect, as well as harm brokers and landlords around the city,” the lawsuit said.
Moving into an apartment in the city can easily cost more than $10,000 in upfront costs, including a broker fee that is typically more than one month’s rent. The median rent is currently about $3,400.
The City Council passed the bill in November over the objections of real estate leaders with 42 votes — enough for a veto-proof majority to prevent Mr. Adams from trying to stop it. Mr. Adams, a Democrat who is friendly with real estate developers, had concerns about the bill, which is set to take effect in June.
The bill requires whoever hires a broker to pay the fee. Landlords and their agents would be required to disclose fees in listings and rental agreements. Violations could result in a civil penalty, including fines of up to $2,000.
Elected officials in New York have been moving to address the high cost of living. Rents have soared, and the city’s rental vacancy rate hovers at close to 1 percent, the lowest it has been in more than 50 years.
The bill’s main sponsor, Chi Ossé, a progressive City Council member from Brooklyn, cast the measure as an effort to address affordability and to bring the city in line with other American cities, where renters do not pay the fee.
Mr. Ossé called the lawsuit a “last desperate attempt by the real estate lobby to undermine the voices of city residents.”
“New Yorkers deserve a rental system that works for them — not one that exploits them,” he said in a statement.
The lawsuit, however, focuses on several arguments: The law violates the right to free commercial speech under the First Amendment of the U.S. Constitution by restricting apartment listings; it violates the contracts clause in the Constitution by invalidating contracts between brokers and landlords; and it is pre-empted by state law that regulates real estate brokers.
Carl Hum, the general counsel for the Real Estate Board of New York, said in a statement that the bill was “bad policy and bad law.”
“This legislation will not only raise rents and make it harder for tenants to find housing, but it also infringes upon constitutional guarantees of free speech and contract rights, as well as New York State law,” he said. “We look forward to our day in court.”
Bess Freedman, the chief executive officer of Brown Harris Stevens, a major real estate firm, said in an interview that the mayor agreed with real estate leaders that the law could prompt landlords to raise rents to cover fees.
“It’s going to create more challenges for a market that has an incredible lack of supply and options for people,” she said.
Earlier this month, Mr. Adams said that he would not veto the bill amid growing tension with the City Council.
“I’m just not in that space of these headlines of dispute,” he said. “We need to be in a better, calm place.”
But Adrienne Adams, the City Council speaker, criticized the mayor over the weekend for attacking a bill that his administration helped negotiate.
“We fully expect Mayor Adams to implement it without delay to reinforce his pledge to support working-class New Yorkers,” she said.
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