A man who made a few hundred bucks renting his East Village apartment on Airbnb will end up paying thousands in fines. The $2,400 fine is annoying but not life-altering, said the man, Nigel Warren, when asked by CNET.
The stakes are far higher for Airbnb itself. There are thousands of apartments available in the city already. But to operate openly in New York and avoid having to defend more of its users against fines, the company feels that it needs to change a New York State law that prohibits people from renting apartments for fewer than 29 days. Airbnb’s difficulties in getting its way in Albany point to a serious stumbling block for all sharing-economy companies: the inability to win over state and local authorities.
Airbnb argues that Warren and those like him are essentially collateral damage in a fight being waged by New York against illegal hotels. The problem, the company says, is an inartfully written law. Liz Krueger, the Manhattan-based state senator who sponsored the legislation, sees things differently.
“The real problem here is the devil-may-care attitude companies like Airbnb take toward the legal consequences for their users,” she said in a statement. “Whether it’s laws like New York’s, or it’s the basic terms of use of a potential user’s co-op or condo, Airbnb is recruiting private citizens into their business model without sufficiently warning them that it may not be legal and could even lose them their homes. That’s pathologically irresponsible.” The company declined to respond to Krueger’s statement.
Airbnb does ask users to follow local laws, and is working on ways to inform potential hosts about legal issues of concern. At the same time, it is using Warren’s case to push New York’s lawmakers to see, from its perspective, the error of their ways.
“This decision makes it even more critical that New York law be clarified to make sure regular New Yorkers can occasionally rent out their own homes,” the company said in a statement. “There is universal agreement that occasional hosts like Nigel Warren were not the target of the 2010 law, but that agreement provides little comfort to the handful of people, like Nigel, who find themselves targeted by overzealous enforcement officials. It is time to fix this law and protect hosts who occasionally rent out their own homes.”
The conflict has echoes of other fights between tech companies that see themselves as outside the purview of regulation and the regulators who do not. Case in point: the disputes over smartphone-based taxi companies like Uber and regulators in many cities across the country.
These conflicts get particularly tricky with sharing companies, which argue that the activities they facilitate are informal and outside regulators’ purview. As Airbnb describes it, what its users are doing is akin to having a friend chip in for rent while he crashes on your couch, except that the friend is a complete stranger and maybe you’re out of town while he’s staying there. You’ll hear the same arguments from companies like Relay Rides, a car-sharing company that New York State recently forced to stop operating because it violated state insurance laws; SideCar, a peer-to-peer taxi service that’s faced legal conflicts in various jurisdictions; and TaskRabbit, whose informal employment model has raised questions about labor laws.
To such companies, legislation that stands in their way looks a lot like obstructionism from entrenched interests, and there may be truth to that. After all, why wouldn’t the hotel industry and the taxi industry leverage their connections in statehouses and city halls to attack upstart competitors?
But at some point the kind of activity that takes place on sites like Airbnb goes from informal, small-time transactions to commercial ones. Consider Chris Dannen’s story. Dannen, an editor for Fast Company, the business magazine, began renting out spare rooms in his apartment on Airbnb. It was good money, so much so that someone else in his building rented a second apartment just to use as a cash cow. Over nine months, Dannen said he made $20,000. The gig came to an end when his landlord issued a restraining order against him, saying that running an apartment rental service out of his apartment violated his lease. At the same time, wrote Dannen in an article for Fast Company, his landlord had begun renting out spaces of his own on the service.
The miniature rental market Dannen describes sounds pretty close to the type of activity that New York’s hotel law was meant to target, although he places himself on one side of the line and his landlord on the other.
“For all but the most ambitious users, Airbnb is a temporary roommate finding service,” he wrote in an e-mail. “There is a minority of hosts who … run their operation like a business—my former landlord is one example, as he converted parts of his rental buildings to Airbnb-only rooms. Going after guys like him—that’s understandable. But decreeing it ‘commercial activity’ across the board is reductive.”
For its part, Airbnb says that 87 percent of its hosts in New York are listing a home they live in, which should exempt them from the state’s hotel law. But it’s pretty clear that some people don’t treasure having hosts as neighbors. Last month, a couple on the Upper West Side was sued by their condo board for violating the terms of their condo agreement by renting out their apartment on Airbnb and other home-sharing sites.
Airbnb is going to have to learn to play the political game to succeed. New York City is chock full of tenants desperate enough for some extra cash to put up with strangers. An article in Crain’s New York Business cited industry sources saying that the site is expected to generate $1 billion of economic activity in 2013. Earlier this year, the company’s director of public policy told Skift, a travel industry blog, that he wanted to make New York a “model city.“
New York is certainly serving as a model, but probably not quite in the way he meant.
Brustein is a writer for Businessweek.com.
