Academic journal article American University Business Law Review

A Tale of Two Cities: The Regulatory Battle to Incorporate Short-Term Residential Rentals into Modern Law

Academic journal article American University Business Law Review

A Tale of Two Cities: The Regulatory Battle to Incorporate Short-Term Residential Rentals into Modern Law

Article excerpt

Introduction

The home-sharing company, Airbnb, is rapidly expanding its empire to cities across the globe.1 Since its start in 2007, Airbnb has had more than eleven million guests stay at hosts' residences,2 and is worth about ten billion dollars.3 Innovative companies like Airbnb are developing the sharing economy by infiltrating the traditional economy.4 The sharing economy is defined as Internet-based sharing through websites or smartphone applications ("apps").5 The sharing economy raises legal questions and regulatory issues, and must be navigated delicately so that the public welfare and potential for otherwise unattainable economic success and development is not quashed.6 The sharing economy has opened many doors, especially for those struggling in this difficult economy, and despite its public approval, it often receives condemnation from state legislators.7 Many people who are suffering because of the economic downturn are turning to sharing platforms to keep their homes, pay rent, or maintain their livelihood.8

Sharing platforms are not limited to the same services as Airbnb. Companies like Uber, Sidecar, and Lyft have profited by revolutionizing transportation.9 Just like the hotel industry suffers from short-term residential rentals, the taxi industry suffers from the use of personal cars as cabs.10 Sharing economy pioneers meet legal complications and pushback from traditional industries as their technology and business models evolve.11

Apprehensions about accepting the sharing economy are valid since many of these sharing companies fly under the legal and regulatory radar.12 Airbnb has created regulatory concerns that have sparked legal changes worldwide, but it raises the most pressing legal issues in two prominent American cities: NYC and San Francisco.13 Airbnb found a backdoor into the hotel industry and crafted regulatory hacks that caused unexpected competition and infuriation among traditional businesses that demanded sharing companies follow customary rules.14 NYC is threatened by Airbnb and has more stringently enforced the New York State "Illegal Hotel Law," formally known as the MDA.15 NYC seeks to prevent short-term rentals of residences because these rentals may not only break state laws, but may also violate lease agreements.16

San Francisco has taken a more liberal approach by passing legislation to incorporate short-term rentals into existing regulations.17 This legislation requires Airbnb hosts to follow guidelines so that the city can regulate short-term rentals and minimize their potentially detrimental effects on the hotel industry.18 The legislation amends San Francisco's Administrative Code, but requires key changes in Airbnb's current operations.19 The pitfalls of the sharing economy include issues surrounding the legal implications of zoning, taxation, insurance, liability, and industry intrusion.20 Airbnb established the Shared City initiative, which partners Airbnb with cities to return revenue to cities in order to alleviate these drawbacks.21

This Comment argues that the regulatory and legal issues surrounding short-term rentals via Airbnb should be evaluated, organized, and incorporated into modem regulation. It compares NYC's conservative perspective and San Francisco's liberal perspective on the concepts surrounding short-term rentals and home-sharing. It assesses zoning, taxation, insurance, and liability issues, and examines current and proposed legislation regarding short-term rentals. Airbnb's legality is considered from a regulatory standpoint, in that the strictly regulated hotel industry is compared against the lenient standards Airbnb follows. This Comment suggests that San Francisco's legislation is a step in the right direction in terms of fusing the sharing economy with current law. Further, it recommends that San Francisco's liberal perspective, in combination with Airbnb's Shared City initiative, should serve as a catalyst for future legislation in American cities. …

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