Airbnb Host Fights City Hall in Case That Puts Sharing Economy on Trial

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New York’s enforcement of rules on small, short-term rentals raises hackles

Although short-term rentals through Airbnb have been a significant source of income for Stanley “Skip” Karol since 2013, he is now scared to continue renting rooms in the childhood home he inherited from his now-deceased parents in Brooklyn.

That’s because he received four summonses from the City of New York’s Office of Special Enforcement (OSE), and he fears further enforcement measures will be launched against him.

“While first targeting landlords of larger buildings who are turning their spaces into illegal hotels, the city is now focusing on smaller short-term rentals,” said Taso Pardalis, an attorney who represents several New Yorkers who maintain listings on Airbnb. “Citations are being distributed for asinine issues such as not having fire alarm systems fit for a hotel in their one- to two-bedroom private residences.”

The 58-year-old Karol filed a federal lawsuit in the Southern District of New York against the city on July 18, alleging violations of his constitutional rights with baseless claims by the City of New York based on a proposed new policy that will treat any home-sharing as illegal.

“The income from these rentals is what keeps Skip Karol in his home: without it, he would be unable to cover the mortgage, utility costs, taxes, and many other expenses associated with home ownership in New York City,” wrote Counselor Andrew G. Celli Jr. in Mr. Karol’s July 18 complaint, which argues the city is violating the First and Fourteenth Amendment in assessing $32,000 in fees against Mr. Karol, who spoke out against proposed legislation that would monitor Airbnb hosts.

The fees assessed against Mr. Karol are for inspection violations, such as failing to provide automatic sprinklers and a sufficient means of egress, according to court records.

“The City, OSE, and the Individual Defendants have acted arbitrarily and capriciously in targeting enforcement against Mr. Karol and treating home-sharing in Mr. Karol’s two-family home as transient occupancy, triggering heightened code requirements otherwise inapplicable to residential properties,” states Mr. Karol’s attorney, Mr. Celli. “Targeting one- and two-family homes like Mr. Karol’s bears no rational relation to the stated purposes of the building laws and the City’s enforcement priorities.”

An Airbnb representative told PacerMonitor that it is footing the legal costs of Mr. Karol’s lawsuit: “We are committed to defending the rights of our hosts not only to share their home to make ends meet but also to exercise their First Amendment rights to free speech.”

Mr. Karol reportedly appeared in person at a public forum on June 26 to oppose the proposed law that would require disclosure of Airbnb host information to OSE and bolster the agency’s enforcement efforts. At the hearing, Mr. Karol complained that OSE placed him in the same category as Airbnb hosts who own 100 apartments. Subsequently, Mr. Karol alleges that inspectors appeared on his doorstep.

Kimberly Joyce, a law department spokeswoman for the City of New York, told PacerMonitor, “We will review the complaint and respond accordingly. However, we do not believe that this new lawsuit has any impact on the new legislation.”

If passed, in just six short months Airbnb and their hosts will face $1,500 fines if they fail to provide OSE with the full names of hosts, addresses for their listings and other pertinent and private information on a monthly basis regardless of whether they are commercial operators or individual homeowners.

“One reason Airbnb doesn’t list the host’s exact address on their site is to prevent a regulator from properly inspecting the rental, which helps hosts be noncompliant without consequence,” said Abbey Stemler, assistant professor of business law at Indiana University’s Kelley School of Business.

After a similar bill was passed in California, the number of listings on Airbnb’s website  dropped by half,” according to Pardalis.

“Laws that discourage users from posting their apartments would be detrimental to Airbnb’s bottom line,” Pardalis told PacerMonitor. “With approximately 50,000 residents within the City of New York currently listing on Airbnb for short-term rentals, this can deliver quite a blow to the second biggest startup in the United States.”

Airbnb typically charges hosts a 3% service fee and guests a fee of up 20% of the total rent, according to its website.

Airbnb and rival home-sharing website Homeaway filed a similar lawsuit in the Central District of California involving a City of Santa Monica ordinance.  

“Absent relief from the Court, HomeAway and other online providers will be faced with the burden of having to review all third-party listings to try to verify they comply with Santa Monica laws,” wrote Attorney Eric M. Stahl in his September 2016 pleading on behalf of HomeAway and Airbnb.

In June, U.S. District Judge Otis D. Wright II dismissed their consolidated claim that the City of Santa Monica was violating the First, Fourth, Fourteenth Amendments, the Communications Decency Act (CDA) and the Stored Communications Act (SCA). The case is now on appeal with the 9th Circuit, with oral argument set for Oct. 12 in Pasadena, Calif.

“The Santa Monica appeal involves a municipal ordinance regulating short-term rental platforms’ provision of “booking services” for third party short-term-rental listings,” wrote Airbnb attorneys Donald B. Verilli Jr  and Joseph W. Cotchett in a July 6, 2018, pleading. “That appeal will require the Court to consider the text of the City’s ordinance, the impact of the ordinance on short-term rental platforms’ operations and based on that impact, whether the ordinance violates the CDA.”

The CDA allows any American to post just about whatever they want online without platforms, such as Facebook or Airbnb, being held accountable or liable for the content, including the safety of a short term rental in someone’s home.

“Remaining classified as a tech company under the CDA will allow the likes of Airbnb, Uber and other apps to continue to skirt around the law, enjoy an unfair business advantage over traditional industries like hospitality and transportation and facilitate transactions in real life without paying the consequences for lapses in accountability,” Stemler said.

The Santa Monica Short Term Rental Ordinance changed all that by requiring online platforms like Airbnb and HomeAway to disclose on a regular basis each home-sharing and vacation rental listing located in the city, the names of the persons responsible for each listing, the address of such listing, the length of stay for each listing and the price paid for each stay without a warrant, notice, subpoena or court order.

The dispute with the Santa Monica ordinance is that it requires accommodation platforms to ensure that hosts have the appropriate license before the platforms can take a fee for transactions,” said Stemler. “This, the platforms argue, is in violation of Section 230 of the CDA.”

Until now, Airbnb and its hosts have avoided local hospitality and municipal rules in Santa Monica because the platforms are classified as technology companies, which protects them from having to comply with industry standards under Section 230 of the CDA.

So, if a tenant is harmed in a fall or in an assault while renting a room secured on Airbnb or Homeaway.com, the home-sharing sites would not be liable because of Section 230 of the CDA.

But if the 9th Circuit Court of Appeals decides that home-sharing sites aren’t acting solely as tech companies but also as hospitality companies, it will set a new precedent that could suddenly render operating a home-sharing business like  VRBO.com, Homeaway, Airbnb and VacationRentals much more expensive.

“It will potentially require home-sharing sites like Airbnb and their hosts to comply with local hospitality rules in every city in the United States,” Stemler told PacerMonitor. “It could also make home sharing sites responsible under the Civil Rights Act and the American with Disabilities Act. They would also have to comply with just about any law or restriction that a local government maintains pertaining to hotels.”

Stemler co-authored a May 23 amicus brief submitted to the 9th Circuit in support of the City of Santa Monica and other cities similarly situated across the U.S. that have been grappling with disruptors such as the Uber and Airbnb apps, which popularized the sharing economy.

“Denying local governments the authority to regulate the business practices of platforms that operate within their jurisdictions threatens the well-being of communities and upsets the proper balance between federal and state power,” Stemler wrote.

The sharing economy has given people a new way to earn for nearly a decade, but its long-term health depends on striking that balance, and, perhaps more importantly, one between the rights of individuals and communities.

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