1. Why the FARE Act Reaches Franchised Brokerages
A national franchise brand does not create a carve-out from local rental law. Every brokerage operating in New York City answers to the FARE Act, whatever brand sits on the door. A federal appeals court upheld the law in 2026, so the rule is settled rather than speculative.
2. What the Law Requires of a Brokerage Franchise
The FARE Act took effect on June 11, 2025, and it bars the broker a landlord hires from billing that fee to the tenant. For a franchise network, that rule reaches every office and agent, not just corporate.
Franchise Policy Cannot Override New York City Law
A franchisor cannot instruct franchisees to collect tenant fees, and a franchisee cannot hide behind corporate policy to justify one. New York City law controls at the point of the lease, whatever the national playbook says. Systems imported from states where tenants pay broker fees need rebuilding for the city under NYC broker fee law.
Residential Rentals Only, so Know Where the Line Falls
The FARE Act governs residential rentals, not commercial leases, where broker compensation stays a matter of negotiation. A brokerage franchise handling both must apply the tenant-fee bar to apartments while treating commercial deals separately. Confusing the two is a frequent source of accidental violations under the FARE Act.
3. When a Franchisor Shares Liability
The tenant-fee bar can reach the franchisor, not only the local office that charged the fee. How far it reaches depends on control and knowledge.
| Party | Core duty under the FARE Act | Where exposure arises |
|---|---|---|
| Franchisor | Set compliant policy and monitor the network | Knowingly permitting or failing to oversee tenant-fee practices |
| Franchisee broker | Follow the tenant-fee bar at each lease | Charging a landlord-hired broker fee to a tenant |
| Both | Allocate risk by contract | Indemnification and termination terms decide who ultimately pays |
Franchisor
- Core duty under the FARE ActSet compliant policy and monitor the network
- Where exposure arisesKnowingly permitting or failing to oversee tenant-fee practices
Franchisee broker
- Core duty under the FARE ActFollow the tenant-fee bar at each lease
- Where exposure arisesCharging a landlord-hired broker fee to a tenant
Both
- Core duty under the FARE ActAllocate risk by contract
- Where exposure arisesIndemnification and termination terms decide who ultimately pays
Control and Knowledge Drive the Analysis
A franchisor faces more exposure when it directs fee practices or ignores known violations across its network. A brand with genuine compliance oversight stands in a far stronger position than one that looked away. Clear contract language on monitoring and indemnity shapes who bears the cost of a franchise-related lawsuit.
4. Penalties and the Records That Protect You
Enforcement runs through the NYC Department of Consumer and Worker Protection, and tenants can also sue in civil court. Weak documentation turns a defensible position into an expensive one.
- Written disclosure of who pays the broker, kept for every deal
- Franchise agreements that expressly ban tenant-paid fees
- Training records showing agents know the rule
- Refund records for any fee returned to a tenant
- An audit trail separating residential from commercial transactions
What the Fines Actually Look Like
The FARE Act allows civil penalties of up to $1,000 for a first violation and up to $2,000 for each later violation within two years. Tenants who were wrongly charged may also recover restitution through a complaint or a civil suit. Repeated violations across a network multiply that exposure quickly, which makes franchise compliance a board-level issue.
5. Frequently Asked Questions
Can a franchise agreement require franchisees to charge tenants a broker fee in NYC?
No, a franchise contract cannot compel conduct that city law forbids, so any such clause is unenforceable for New York offices. If a franchisor keeps that requirement in its national agreement, both sides invite liability. The safer move is a New York-specific amendment that bars tenant-paid fees outright.
Does the FARE Act change anything for a brokerage franchise handling commercial leases?
Not directly, because the tenant-fee bar applies to residential rentals, while commercial broker compensation stays negotiable. The real risk is operational: agents who handle both can misapply the residential rule or wrongly assume it covers commercial deals. Clear internal lines and training prevent that mistake.
If a franchisee charges an illegal fee, when is the franchisor actually on the hook?
Liability usually turns on control and knowledge, not on the franchise label alone. A franchisor that set or tolerated the practice, or ignored red flags, faces far more exposure than one with real oversight. Indemnification clauses then decide who absorbs the cost between the two.
6. Key Takeaways
For a brokerage franchise in New York City, the FARE Act applies at every office, and no corporate policy can override it. Identify where residential rules end and commercial deals begin, update franchise agreements to prohibit tenant-paid broker fees where required, and keep records that demonstrate compliance. When a violation occurs, control, contractual allocation of responsibility, and documentation often play an important role in determining legal exposure.
06 Mar, 2026
