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Legislative Gazette: 72% of Airbnb rentals in NYC are illegal, AG says

By Jessica Piccinni, October 17

A report released by Attorney General Eric Schneiderman last Thursday revealed widespread illegal activity from the online hotel company Aribnb.

The report, titled “Airbnb in the City,” analyzed bookings of short-term rentals in New York City between Jan. 1, 2010 and Jun. 2, 2014, and found that 72 percent of those transactions violated New York zoning laws.

As a result of the findings, Schneiderman announced a new joint initiative between the AG’s Internet and Taxpayer Protection Bureaus and the city of New York to investigate and eradicate illegal hotel activity in the five boroughs.

“This report raises serious concerns about the proliferation of illegal hotels and the impact of Airbnb and sites like it on the city of New York,” Schneiderman said. “We must ensure that, as online marketplaces revolutionize the way we live, laws designed to promote safety and quality-of-life are not forsaken under the pretext of innovation.”

According to the report, private, short-term rentals in New York City doubled almost every year between 2010 and 2013, with total revenue in 2014 expected to exceed $282 million for both Airbnb and its hosts.

More than half of these rentals were found to be in violation of zoning laws, including the Multiple Dwelling Law, which prohibits short-term rentals in “Class A” residential buildings—which includes most residential buildings—with three or more units for less than 30 days, and the New York City Administrative Code, which prohibits occupancy in non-residential buildings such as old manufacturing buildings that have been illegally converted into housing. During the report’s review period, Airbnb received $40 million in transaction fees while hosts received close to $304 million in revenue off allegedly illegal listings.

Six percent of hosts —1,406 users — were considered commercial users, running short-term rental businesses that administered anywhere from three to 272 units during the review period. These users accounted for a total of $168 million in revenue. Although a minority, these users dominated the Airbnb private short-term rental market, controlling one out of every five units.

Since 2010, 124 commercial users operated enterprise scale ventures of 10 or more short-term rental units that together amounted to $60 million in revenue during the attorney general’s review period. The highest earning of these users earned $6.8 million in revenue off 272 listings over a period of less than five years.

In 2013, the report found more than 4,600 units, primarily located in Brooklyn and Manhattan, were being operated as short-term rentals through Aribnb for at least three months out of the year. Of these, 2,000 units were used as short-term rentals for 186 days out of the year.

About a dozen buildings located throughout the same two boroughs had 60 percent of their units being used for private short-term rentals, suggesting the buildings were operating as either illegal hotels and/or hostels with bunk beds. Currently, New York City prohibits for-profit hostels due to the stringency of safety requirements.

“It is no wonder that Airbnb fought to keep this data in the dark, because the picture it paints is clear: nearly three quarters of Airbnb’s New York rentals are illegal, and commercial operators account for a large portion of its business,” said Sen. Liz Krueger, a Democrat who represents the upper east side of Manhattan, and a vocal critic of short-term leasing. “Airbnb’s business model seems to be to ignore the law and spend huge amounts promoting slick ads and cherry-picked statistics, telling a story about their business that, at least here in New York, doesn’t match the reality.”

Schneiderman’s report used these statistics to point out the effect illegal hotel operations enabled by companies like Airbnb can have on diminishing housing stock for long-term residents of New York City.

It also points out the potential hazard posed by a constant stream of transient visitors for both tenants and the buildings themselves. A complaint submitted by a resident to the AG’s office in response to illegal hotel operations included in the report reads, “[I live in] a Class A partly rent-stabilized four-floor building in lower Manhattan. A first floor apartment is being rented out as a hotel suite. The [temporary renters] [do not] have a key to garbage disposal, so they dumped their trash on the street. In July 2012, [an apartment in the building] was burglarized in what appeared to be an inside job. Numerous other apartments on my block have also been listed on Airbnb. We urged management to put an end to illegal hotel rental. Safety, building security, quiet enjoyment of our homes, any sense of community are under assault: please investigate.”

In its terms and conditions, however, Airbnb rejects all liability for “the content contained in any listings or the condition, legality, or suitability of any accommodations,” claiming merely to be a platform for allowing people to “list, discover, and book unique accommodations around the world.”

Airbnb responded to the attorney general’s report, calling it incomplete and outdated. Their statement reads, “The report’s findings do not account for the more than 2,000 listings we have already removed from our community in New York. Additionally, every single home, apartment, co-op and living space in New York is subject to a myriad of rules, so it’s impossible to make this kind of blanket statement about listings. That kind of uncertainty and lack of clarity is exactly why we’re advocating for clear, fair rules for home sharing.”

Although Airbnb has been largely criticized for its disregard for user content, many of its hosts’ listings do not violate laws, such as short-term rentals in one- or two-family homes, or in apartments where the primary residents are present for a majority of the time.

Instead of placing a blanket ban on the site, Krueger and other Manhattan legislators have joined together in a new coalition in hopes of passing legislation that will more strictly regulate the company’s activities.

“Airbnb’s cheery ads that show people having lovely brunch with their ‘guests’ hide an ugly reality that Attorney General Schneiderman has documented; illegal hotels violate fire and safety codes, make life a nightmare for law-abiding neighbors, and rob the city of urgently needed housing,” said Assemblyman Richard Gottfried, D-Manhattan.

Recently, an incident involving the subject of one of Aribnb’s advertising campaign stars was pointed to by Krueger as further evidence that the company is using a careless business model that facilitates illegal activity.

According to an article published by New York magazine, Michelle Martinez was evicted from her $4,000 a month historic Dutch barn located in Stuyvesant, Columbia County, for violating her lease.

The owner of the property, Christopher Griffith, rented out the barn to Martinez after relocating overseas for work in late 2013. Before signing the lease, the young fabric designer explained to Griffith that she would be using the space to host her artist friends from around the world, with whom she often collaborated on projects. Griffith later came to find out that she had been renting out the barn, along with other leased properties in New York City, to strangers on Aribnb to help cover her monthly expenses, going in direct violation of her lease. After vain attempts to persuade the company to take recourse, Griffith evicted Martinez, who called the situation a “misunderstanding.” An Airbnb spokesman last week called the situation a “simple misunderstanding” based in part on her past experience leasing her apartment in Brooklyn.

“Airbnb claimed throughout this process that they are just a ‘platform’ and had no responsibility to protect either the property owner or the host, and the host was put on the hook to be evicted because Airbnb fails to properly screen or inform tenants who are breaking the law or their own leases,” Krueger said in a statement.

In New York City, one of Airbnb’s most important markets, the company has been under particular scrutiny for allegedly exacerbating the affordable housing crisis.

The problem of short-term leasing was first brought to Krueger’s attention in 2005, when constituents began complaining about constant traffic of strangers in their buildings speaking foreign languages and acting in a rowdy manner.

In 2010, Krueger, along with Gottfried, passed an amendment to the Multiple Dwelling Law known as the Illegal Hotel Law, which prohibited transient occupancy in multiple-dwelling units in New York City for periods of less than 30 days in an effort to protect housing stock.

Although Martinez’s case does not fall within the scope of the Illegal Hotel Law, it has been used in recent days to emphasize the company’s supposed disregard for legal consequences in favor of being able to maximize its profits.

Despite this criticism, SUNY Buffalo Law School Professor Mark Bartholomew, who specializes in intellectual property and advertising regulation, says there may be a plausible argument for Airbnb’s disclaimer of responsibility.

Under Section 230 of the Federal Communications Decency Act of 1996, providers and users of “interactive computer services” who publish information provided by others are granted immunity from liability. During a time when the Internet was still in its infancy, the exception was created by Congress in an effort to promote the expansion of the web.

In fact, Airbnb is not the only online company that is protected by this law. Criagslist, the international classifieds site, has often been criticized for allowing discriminatory content, while another site, Stubhub, essentially condones the practice of ticket scalping. Both allow for practices, which, in the real world, would incur legal repercussion.

“The law is controversial because it could be passed off as outdated,” Bartholomew said. “On the one hand, you have those saying that we don’t need to allow business this kind of perk anymore. On the other hand, there are those who say it could be harmful to the Internet if it’s annulled.”

During the last legislative session, Airbnb lobbied to modify the state’s Multiple Dwelling Law to eliminate legal obstacles for users, but was unsuccessful.

Phyllis Weisberg, a partner at Montgomery, McCracken, Walker & Rhoads and chair of the Cooperative and Condominium Law Committee of the New York City Bar Association, says that even if Airbnb had succeeded, there would still be contractual issues posed by lease agreements that would be difficult, if not impossible, to circumvent.

“At the end of the day, these people want to make money and New York City is a valuable market,” Weisberg said. “They have raised a lot of legal concerns, and in some respects, they shouldn’t even be giving legal advice [by warning users on their website].

“On the other hand, they are using a business model based on encouraging people to run their apartments as hotels, even if it violates their leases or bylaws, and thereby puts them at risk. There is something flawed about this model,” Weisberg said.

Both Bartholomew and Weisberg have acknowledged the rise of a sharing economy that encompasses everything from lodging to transportation. They also agree that as its impact on everyday life increases, legal concerns will likely increase as well.

“Sharing is a positive and innovative trend. It will continue and thrive, but there will also be a lot of compromises and negotiations. Even Amazon, one of the biggest internet companies had to make a compromise after using a loophole to avoid sales taxes for [a time],” Bartholomew said.

This Friday, New York City Mayor Bill de Blasio’s Office of Special Enforcement filed a motion with the New York State Supreme Court enjoining owners of two residential buildings in Manhattan, 59 Fifth Avenue and 5 West 31st Street, from continuing to operate their buildings after using Airbnb to advertise units for short-term rentals in violation of state zoning laws.

“With inspections by the Mayor’s Office of Special Enforcement up 50% over 2013, I expect that there will be more enforcement actions and we can catch up to the bad actors who are running illegal hotels in residential buildings,” said Manhattan Borough President Gale Brewer in a press release.