Legal Bytes: Is Airbnb coming to your neighborhood?

Airbnb’s #weaccept Super Bowl ad last month was seen as a response to Donald Trump’s executive order on immigration. However, in regard to Airbnb’s recent New York ad campaign, perhaps the hashtag should have been #acceptus.

Since 2010, it has been illegal in New York to use a class A multiple dwelling for purposes other than a permanent residence, i.e., for less than thirty days. A multiple dwelling is a dwelling which is either rented, leased, let or hired out, to be occupied, or is occupied as the residence or home of three or more families living independently of each other.

In 2016, Gov. Cuomo signed into law § 121 of the Multiple Dwelling Law which prohibits “advertising that promotes the use of dwelling units in a class A multiple dwelling for other than permanent residence purposes.” Essentially, this statute outlawed Airbnb for multiple dwellings throughout New York State. It is important to note, however, that neither § 120 nor § 121 prohibit Airbnb hosts (or homeowners in general) from advertising and offering short-term rentals of their single-family home, duplex or guest apartment; this exemption will be discussed below.

Hours after the bill was signed, Airbnb filed suit against Attorney General Eric T. Schneiderman, New York City and its mayor, Bill de Blasio, in the Southern District of New York, claiming the law could allow New York to hold Airbnb liable for violations of the law. New York state was dismissed from the lawsuit, owing to the attorney general agreeing to leave enforcement of the law to the cities. In December 2016, Airbnb dropped the lawsuit entirely in exchange for an agreement that New York City would only enforce the law against hosts and not Airbnb.

This entire ordeal exemplifies the dichotomy within New York state. The laws discussed above were a response to the housing market crisis in New York City. People were buying or leasing apartments not to live in, but to rent out using services like Airbnb. This has the effect of decreasing the housing supply and thus increasing the cost of buying or renting apartments in which someone will live. This is an entirely valid concern where land is limited.

However, in places north of New York City — about 94% of the state’s landmass and where about 43% State’s population resides — the problems encountered downstate are not as relevant. In what I will call upstate New York, Airbnb poses a different set of problems. Here, where land is relatively plentiful, the concern is not people buying up properties to rent them out ala Airbnb; it is about disrupting a neighborhood or community.

If we look to certain municipalities that surround vacation destinations, such as those in close proximity to the Finger Lakes, these are not municipalities with huge swathes of land set aside for hotels, motels and other vacation rentals. These municipalities tend to have large residential areas wherein a home may be rented out during peak season.

One of the problems is when a single home on an otherwise residential street becomes a short-term rental hotspot. Suddenly, the neighbors are dealing with vacationers who may or may not be respectful of local ordinances and perhaps even common decency.

Neither § 120 nor § 121 of the Multiple Dwelling Law covers this scenario. Further, even if the law did cover dwellings of two or less families, § 121(4) leaves enforcement of the law up to the attorney general (who, as stated above, will not seek enforcement of the law) for cities with populations less than one million. To whom can residents of these communities turn? The only realistic answer is for residents to rely on their local municipalities to address the issue. However, this will create a patchwork of laws that may be inconsistent from municipality to municipality.

This patchwork of ordinances and local laws from multiple municipalities will require Airbnb hosts, and those who work with hosts as an intermediary between the host, Airbnb and the guest (I just recently learned this is an actual job) to either diligently review the local laws and ordinances in whatever municipality the property lies or possibly hire an attorney to stay on top of the changing legal landscape.

What might happen if a host or intermediary (or even Airbnb, depending on how the local law or ordinance is written) violates a local law or ordinance? Under the New York state law, each violation is punishable by a fine up to $7,500. Additionally, municipalities are entitled to enact laws and ordinances to the extent of the powers granted to them under New York state law, which is to say, municipalities are authorized to enact local laws relating to the protection, order, conduct, safety, health and well-being of persons or property therein.

Hosts are therefore left with a legal framework that may put themselves and intermediaries into a difficult position. Depending on the specific ordinances or local laws, municipalities can fine a person, in some instances, up to $1,000 and/or jail up to six months imprisonment. In addition to the preceding, municipalities are authorized to seek injunctive relief, i.e., an order stopping the behavior, the violation of which may subject a person to fines and imprisonment.

If fines and imprisonment weren’t enough of a potential penalty, we can’t forget about taxes. Monroe County also imposes a 6% hotel tax. According to the Department of Finance, Monroe County interprets the Monroe County Code to include short-term rentals such as Airbnb. This means that all money received from a guest is subject to a 6% hotel tax. The hotel tax is in addition to federal and state income taxes and Airbnb’s 6-12% cut of the revenue. Additionally, any person who willfully does not pay the hotel tax will be personally liable for the tax and be guilty of a misdemeanor. Personal liability means that forming an LLC or corporation will not protect the host from tax liability.

In what may be considered good news for the Airbnb host, guests have little to no recourse against Airbnb and a host whose rental has, for instance, bed bugs causing the guest to abandon the rental. Airbnb, in its Terms of Service (“TOS”), states, “any bookings will be made at the guest’s own risk.” To what extent this mitigation of liability extends is unknown; does it apply to slip and fall or outright misrepresentation? Hosts and guests should understand the limits of liability and how those limits will affect them. Further, under Airbnb’s TOS, users are restricted to arbitration, and explicitly waive the ability to file a class-action lawsuit.

Airbnb may provide a great opportunity for extra income. However, due to the increasing popularity of the service, municipalities may soon seek to curb short-term rentals in order to appease residents that are unhappy that their formerly residential neighborhood now has a steady stream of guest traffic. It is incumbent upon any Airbnb host to investigate fully the laws, ordinances and rules regarding short-term rentals in the municipality in which the property lies. Failure to adhere to the laws and ordinances can subject the host to fines, penalties and even jail time.

Jason W. Klimek is an Associate and a member of Boylan Code’s Corporate Practice and Real Estate Groups. He concentrates his practice in business planning and development, tax planning, advising and financing.