By Alon Harnoy, Esq., Moty Ben Yona, Esq., and Ethan Rubin, Summer Associate
Airbnb is a new entrepreneurial company utilizing a sharing economy business model to provide a platform for homeowners and travelers to connect with one another. Through the platform, a homeowner can rent out their home for a few days to make some quick cash and travelers can find nice affordable temporary lodging. The companies sharing economy business platform has disrupted the real estate market in New York City because past housing laws were not tailored to deal with advertising short-term rentals in apartment buildings.
Similarly to Uber, Airbnb is helping people connect in a quicker more efficient manner than what the traditional marketplace could provide. Through Airbnb, a traveler could find a cheaper alternative to stay in New York City than most prestigious hotels could offer while still providing nice amenities; and a homeowner can rent their apartments for a weekend or a couple days to make a few extra easy “bucks” without the hassle of having to sign a sublease or acquiring consent from a landlord.
However, many of New York’s residents became agitated with Airbnb, claiming that these short-term rentals were making affordable housing in the City nearly impossible to find because Airbnb incentivizes homeowners to rent to travelers for a couple of days rather than making subleases to City residents on a month-to-month basis. In addition, many New York hotels were displeased with the company because it undercut their earning potentials by taking away their customers without subjecting Airbnb to the same taxes they incur. As a result of this, Governor Cuomo in October 2016 signed a new law that imposes fines on those who advertise vacant apartments in a multi-unit building for 30 days or less. These fines are greater than the ones imposed by the old law banning short-term rentals and could be as high as $7,500 for repeat offenders, which threaten the company’s operations in New York State. In the face of this, there is one exception to the new law – it is not illegal for a host to rent a room in their apartment if they are occupying the apartment at the same time as their guests. Therefore, Airbnb is not completely outlawed in New York City.
Liz Krueger, the State Senator who sponsored the bill, said in a statement that the passage was a “huge victory for regular New Yorkers over the interests of a $30 billion corporation.” She argued that Airbnb was actively encouraging illegal activity by taking apartments off the rental market and aggravating the City’s affordable housing crisis. In response Airbnb stated that New York lawmakers ignored the wishes of their constituents and rewarded the price-gouging hotel industry while disregarding the voices of tens of thousands of New Yorkers. In addition, Airbnb immediately filed a lawsuit in the Southern District of New York asking the federal court to grant a temporary injunction to block the enforcement of the new law; arguing that the law was unconstitutional.
Nevertheless, in December 2016, the company dropped their lawsuit and agreed to a settlement with the State. Airbnb agreed to drop the lawsuit on the condition that New York only enforces the new law against hosts and refrains from fining Airbnb. The agreement was considered a victory for opponents of Airbnb and the company stated afterwards it was “willing to crack down” on people in the City who rent out multiple homes. Ultimately, Airbnb bowed to pressure from politicians and tenants’ rights groups who said the company had made it harder to find affordable housing in the City.
Since then, New York City issued its first illegal Airbnb fines in February 2017. Two New York City property managers were fined for allegedly listing short-term apartment rentals on Airbnb and were collectively charged for 17 violations with each violation costing $1,000. The allegedly illegal properties were located on the Upper West Side in Manhattan and in Bedford-Stuyvesant in Brooklyn. Despite these initial crackdowns, the Crain Report, issued in May 2017, revealed that only a mere 139 out of a potential 23,639 illegally advertised Airbnb units have actually been hit with $1,000 fines by the Mayor’s Office of Special Enforcement.
While Crain’s notes that some of the listings could be for units that are in buildings exempted from the law, like single-family homes, there are still a sizable number of properties that would most likely run afoul of the law. In response to these staggering numbers, Melissa Grace, a spokesperson for Mayor Bill de Blasio, told the Gothamist that the City is cracking down on violations. She stated, “New Yorkers who rent their home must follow the law, and we will continue to go after those who take affordable housing off the market, disturb their neighbors, and put guests at risk.” She continued to state, “we have issued more than $280,000 in fines in three months under a tough new State law, and won’t hesitate to continue protecting New York City’s housing stock.” Even so, it seems from this report that there are still plenty of opportunities for Airbnb hosts.
In light of the Crain Report, as of October 2017, the settlement has still been honored and New York has pursued violators for posting short-term rentals with prosecuting the hosts as opposed to the company. Like many any other sharing economy companies, Airbnb disrupted a traditional marketplace by providing people with a platform to transform an industry that has been the same for centuries. As a result of this, past New York City laws were not geared to deal with Airbnb’s transformative platform and the City responded with stricter regulations to attempt to deal with the hardships it imposed on affordable housing. Tenants concerned with affordable housing should continue to be protected and short-term rental advertising should be prosecuted. In conclusion, we are only witnessing the beginning of the potential impacts Airbnb will have on the real estate market and there is still more to be seen not only in New York, but in other states and other countries as well.