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


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.

I. Infiltration of the Sharing Economy

Sharing companies have become more common, which is attributable to the transformation of technology and the desire for the otherwise unobtainable.22 Technology provides reduced transaction expenditures allowing for low overhead costs.23 These innovative companies provide a glimpse into the future and leave their users yearning for the cheap convenience the sharing economy offers.24

A.Evolution of the Sharing Economy and Companies that Dominate It

The sharing economy is defined as "a system that uses technology to link supply and demand in previously impossible ways."25 It affords consumers the luxury of convenience while getting the most for their money.26 It is easier than ever for a consumer to have access to short-term rentals, private drivers, and virtual department stores without having to go anywhere.27 One click of a button can provide consumers with rock-bottom prices that traditional businesses cannot compete with.28 However, many view the sharing economy as the enemy, instead of accepting it as the way of the future.29

Sharing companies have expanded on traditional industries. Yet there are still more advances to be made within the sharing economy.30 Although ride-sharing and home-sharing companies have established themselves within the taxi and hotel industries respectively, other industries remain untapped.31 Representative David Schweikert believes that "we are entering the age of the hyper-efficient economy," citing companies like Airbnb among those that are revolutionizing the economy.32

Consumers find comfort in using established and familiar entities, and since the sharing economy is still a developing and unfamiliar medium, some users are skeptical of its increasing popularity.33 While consumer confidence may not be unequivocal, the sharing economy offers society an enhanced social and technological future.34 For example, sharing companies have contributed to societal organizations during disasters.35 One such example is Airbnb working with NYC during Hurricane Sandy to connect people who needed shelter to Airbnb hosts who could take in refugees.36

Surprisingly, Airbnb appeals more to people over fifty-five, rather than the expected eighteen to twenty-five-year-old demographic.37 The appeal stems from the efficiency of the sharing economy, "collaborative consumption,"38 which allows people to capitalize on what they already have access to, and its simplicity of use.39 Opponents of the sharing economy claim that sharing suffocates innovation, but supporters counter that traditionalists are simply threatened by what is rapidly becoming the new norm.40

Uber, a ride-sharing company that matches drivers with passengers, is in the sharing economy spotlight with Airbnb.41 Ride-sharing, like homesharing, has caused controversy and faced legal complications.42 Like Airbnb's alleged encroachment on the hotel industry, Uber, and companies like it, spark competition within the traditional cab industry.43 However, many people believe that sharing companies seek to stimulate change and improvements for consumers, rather than destroy existing industries.44

B.What is Airbnb? The Brief Six-Year History of the Home-Sharing Company

Airbnb is considered the Uber of residential rentals or the "e-Bay for space."45 It is the matchmaker between travelers and hosts, seeking to promote the sharing economy and encourage aspiring entrepreneurs.46 The sharing economy allows anyone to be an entrepreneur by fostering collaboration in a pre-established framework.47 Peer-sharing does not require individuals to be innovative or to have strong drive and passion to compete in the marketplace.48

Airbnb was established in San Francisco by two friends, Joe Gebbia and Brian Chesky, who were struggling to pay rent.49 Due to a conference in San Francisco, hotels lacked vacancies, so the pair decided to rent out airbeds in their apartment and serve breakfast to guests.50 Based on this idea, they created They quickly realized that their idea could work on a larger scale if they capitalized on their strengths and expertise by taking advantage of space that already existed and only required a few modifications.52 The third founder, Nathan Blecharczyk, maintained Airbnb's online presence and put together its first online platform just two weeks before the conference that put Airbnb on the map.53

The founders launched Airbnb just before the Democratic National Convention where President Barack Obama was due to speak, and they booked almost 1,000 rentals.54 Despite its success, Airbnb did not generate profits until it gained investors and began charging a booking fee catapulting Airbnb from a small start-up into a budding company.55 As Airbnb received more funding and investments, it rocketed to the ten billion dollar company it is today.56 The founders adjusted their approach, which led to an increase in rentals and celebrity investments in Airbnb.57 As it expanded, Airbnb offered more luxurious options ranging from rentals in Paris with views of the Eiffel Tower to castles in England.58 Airbnb was established as a cheap alternative to a hotel, so the founders were surprised when users started to prefer homes to hotel rooms.59

Airbnb currently operates in 190 countries and over 34,000 cities; it has hosted over fifteen million guests since its founding, and boasts more than 800,000 listings worldwide.60 The story behind these impressive numbers reveals that Airbnb must work hand-in-hand with each of these 34,000 cities because each city imposes strikingly different short-term rental regulations..61 Despite the legal woes Airbnb has faced in terms of taxes, liability, zoning, safety, and many other regulatory issues, it has managed to escalate itself to success and raise over one hundred million dollars through investments.62

C.Airbnb 's Shared City Initiative

Airbnb launched Shared City, an initiative that attempts to bring cities back to the concept of sharing spaces and operating with greater efficiency.63 Cities are the original sharing platforms, and Airbnb believes that returning to community-sharing will strengthen cities socially, economically, and environmentally.64 Shared City is the "initiative to help civic leaders and [communities] create more sharable, more livable cities through relevant, concrete actions and partnerships."65 The first city to partner with Airbnb was Portland, Oregon.66 Shared City encourages hosts to donate money from renting properties in order to to support local businesses and causes.67

Airbnb also seeks to launch its Home Safety initiative in more American cities to educate and encourage host responsibility and the adoption of effective safety practices.68 Airbnb wants to prevent hosts from abusing the platform by skirting laws and regulations.69

Shared City encourages mom-and-pop shops to become staples in communities once again.70 Shared City aims to offer significant community benefits, and even vows to "collect and remit taxes" on behalf of Airbnb hosts.71 Airbnb believes hosts should pay taxes and abide by the same regulations under which established businesses operate.72 This initiative seeks to bond communities through charity, safety, and support for local businesses, while addressing Airbnb's legal issues.73 Airbnb is proactive in reaching out to cities to lessen the strain on short-term rentals.74 If Shared City successfully creates more close-knit, stable communities in its initial cities, Airbnb intends to launch it in other cities across America.75


NYC and San Francisco express opposing views on the benefits that Airbnb can have on their communities. NYC leans in a conservative direction, seeking to expel short-term rentals because of their potential to infringe on the current economic stability of the city. San Francisco is more liberal in its acceptance of the changes that Airbnb offers and the benefits that can arise from accepting short-term rentals in a restricted way.

A. New York's Conservative View of Short-Term Rentals

NYC contends that short-tem rentals pose too many issues with regard to various aspects of the community and economy. The city is much less willing to consider regulating short-term rentals as San Francisco has chosen to do.

1.Does Airbnb Have Any Liability if Its Hosts Encounter Legal Issues?

Like many legal disclaimers, Airbnb renounces liability if a legal issue arises.76 Airbnb's website articulates hosts' responsibilities to obey local laws by stating, "[b]y accepting our Terms of Service and activating a listing, you certify that you will follow your local laws and regulations."77 From a business perspective, it makes sense for companies to protect themselves from liability.78 Unexpected accidents can occur when guests stay in unfamiliar places. On one occasion, a hot water heater could have led to severe injuries had a guest bumped into it.79

The sharing economy, and home-sharing specifically, has encountered liability issues.80 Ride-sharing companies' encroachment of the taxi industry is comparable to Airbnb's encroachment on the hotel industry.81 Uber and Lyft are currently facing legal challenges regarding their refusal to acknowledge that their drivers are employees and continue to insist that they are independent contractors.82 Airbnb chose to renounce liability, claiming that its users are not employees, and that it only provides a platform to connect parties.83 This rejection of liability should not mean Airbnb is exempt from responsibility if hosts act illegally or if something goes wrong during a guest's stay.84 However, Airbnb contends that it is just a matchmaker, similar to an online dating platform.85 A dating site connects two parties using the site as a starting point, but what happens from there is not the dating site's responsibility.86

Airbnb appears to set its users up to break the law.87 Its terms and conditions state, "Airbnb is not responsible for and disclaims any and all liability related to any and all listings and accommodations."88 Airbnb' encourages users to familiarize themselves with local laws to ensure their compliance, but this is ironic since most laws prohibit short-term residential rentals.89

i. Airbnb Requires Hosts to Provide Insurance

After the initial excitement over the opportunity to profit from short-term renting, hosts began asking questions about insurance coverage.90 Airbnb shields itself from liability in this regard by explicitly stating that it:

recommends that hosts obtain appropriate insurance for their accommodations. Please review any insurance policy that you may have for your accommodation carefully, and in particular please make sure that you are familiar with and understand any exclusions to, and any deductibles that may apply for, such insurance policy, including, but not limited to, whether or not your insurance policy will cover the actions or inactions of guests (and the individuals the guest invites to the accommodation, if applicable) while at your accommodation.91

Airbnb suggests that hosts have homeowners or rental insurance; however, if an insurance company refuses to provide coverage, a host should bring the complaint to Airbnb because it may motivate Airbnb to create a better insurance policy.92 Airbnb publicizes its host-friendly guarantee, which claims to provide a one million dollar insurance policy for hosts.93 This policy seems admirable, but the small print reveals that the one million dollar guarantee only applies after a host's personal insurance is exhausted.94 Airbnb may suffer if hosts decide that renting through Airbnb is not worth the insurance risk.95

ii. Blindly Signing Your Life Away

Airbnb, like most electronic companies, lists its terms and conditions in a difficult format to read, making it likely that they are not read at all.96 Terms and conditions, while often written in small print in an arbitrary location, or not listed at all, may still be legally binding.97 Users often click "I agree" to accept terms and conditions that may bind them to contractual terms they never read.98 Courts have accepted these clickwrap contracts as valid following the decision in Pr°CD, Inc. v. Zeidenberg. In that case, the United States Court of Appeals for the Seventh Circuit held that Zeidenberg was bound to the terms he agreed to when he loaded Pr°CD's software onto his computer.99 Zeidenberg chose to ignore the terms and conditions and clicked "I agree" despite being unaware of the what he was agreeing to.100

Therefore, users who blindly accept Airbnb's terms and conditions would likely be held to their agreements.101 Users are prompted to enter personal information, and in small print at the bottom of the sign-up window, a message states, "[b]y signing up, I agree to Airbnb's Terms of Service, Privacy Policy, Guest Refund Policy, and Host Guarantee Terms."102 Each policy explanation is extensive in length and written using complicated legalese.103

The conditions in Airbnb's "Terms of Service" state, in all caps:

[y]ou understand and agree that Airbnb is not a party to any agreements entered into between hosts and guests, nor is Airbnb a real estate broker, agent or insurer. Airbnb has no control over the conduct of hosts, guests and other users of the site, application and services or any accommodations, and disclaims all liability in this regard to the maximum extent permitted by law.104

If users were aware that Airbnb renounced insurance liability, they would be more likely to question and contest this practice, which could compel Airbnb to take on more responsibility for issues that arise as a result of its operations.105

2.Airbnb Is Asking New York State to Tax It Like a Hotel

Airbnb has not been paying taxes like legally operating hotels are required to do, but the company is determined to pay the hotel tax in order to be considered legitimate and operate without concern.106 In the case of Airbnb, Inc. v. Schneiderman,]01 New York State's Attorney General Eric Schneiderman subpoenaed Airbnb's NYC user records in a campaign to enforce the MDA, which prohibits "illegal hotels."108 The Attorney General sought to determine how many Airbnb users were avoiding occupancy taxes, due to hotel industry complaints that this lack of payment hurts hotels.109 Airbnb argued that collecting information on 15,000 of its hosts was unreasonable and a "fishing expedition," and it challenged the Attorney General's request.110 The judge agreed that the subpoena was overly broad, and gave the Attorney General's office a year to review the Airbnb host data of only 124 hosts, which was made anonymous for privacy reasons.111 The New York State government's concern is that Airbnb gives users the ability to abuse the platform by operating residentially-zoned buildings as illegal hotels.112 New Yorkers purchase shares of a cooperative or condominium to live in residential buildings; however, permanent residents may experience strangers coming and going because neighbors use these residences as illegal hotels.113

David Hartman, head of Airbnb's Public Policy Department, reports that eighty-seven percent of hosts rent the property where they permanently reside and are not transforming residential buildings into illegal hotels.114 Airbnb contends that most of its hosts do not abuse the platform and announced that it removed about 2,000 listings that made NYC "worse, not better."115

Airbnb continues to request that NYC alter its laws to allow Airbnb to collect taxes on rentals.116 Airbnb claims it could bring in sixty-five million dollars in hotel occupancy tax revenue117 for NYC and it reached out to Mayor Bill de Blasio for his endorsement.118 Critics argue that Airbnb hurts the hotel industry's success by encroaching on its tourist base."9 The hotel industry argues that Airbnb is an "illegitimate enterprise,"120 and it initially demanded that Airbnb pay hotel taxes.121 Hotels want a level playing field, arguing that Airbnb should have to comply with hotel regulations, or that they should be able to take advantage of Airbnb's more lenient standards.122 Therefore, it was surprising when Airbnb's attempt to pay taxes was met with opposition by the hotel industry, which claimed that if Airbnb pays taxes it would fall "under the umbrella of legality."123 Airbnb's path to operational legality through the tax vein has not been overwhelmingly embraced, but it is necessary for fair competition. That being said, it requires compromise by lawmakers and the hotel industry.124

Airbnb adopted a goodwill angle to win over NYC and convince lawmakers to consider its tax proposal.125 Airbnb has pulled on NYC's heartstrings by emphasizing that the tax would provide the city with millions of dollars, which could go toward programs to help residents.126 For example, the taxes could provide 420,000 textbooks to public schools and nearly three million meals to the elderly.127 Airbnb also tackles its issue from an emotional angle by describing how it enhances the lives of New Yorkers in helping citizens keep their homes during a difficult economy.128 For instance, one New York woman who rented out a bedroom through Airbnb would not have been able to pay her rent and medical bills without the extra income she received.129 Taxing Airbnb would remedy concerns about Airbnb's unfair competition in the hotel industry, and would allow some hosts to retain their residences, which would benefit the city overall.130

3.Zoning Issues Surrounding Short-Term Rentals and New York State 's MDA

The MDA is unique to New York State because not all states have comparable multiple dwelling laws.131 However, most states do regulate residential areas, landlords, and hotels, usually reserving the right to rent rooms to the hotel industry.132 The MDA was amended in 2010 to eliminate interpretations that would allow illegal hotels.133 This affected Airbnb and its hosts who operate their businesses out of residential dwellings.134

Under the MDA, Class A dwellings are for permanent resident purposes only.135 "Permanent resident" means that the same person or family inhabits the dwelling for thirty or more consecutive days.136 The occupancy of a Class A dwelling can only be modified if guests staying for under thirty days reside in the dwelling while the permanent resident is present.137 If the permanent resident is not present and guests stay in the house for under thirty days, the permanent resident cannot receive payment from the guests for their occupancy.138 Unless the location is zoned as a hotel or hostel, any rental under thirty days - where the permanent resident is not present - is illegal and violates New York State zoning laws.139 However, the MDA is hard to enforce because violators fly underthe-radar, as landlords and neighbors may not notice transient guests, especially if no one monitors who frequents the building.140

Additionally, hotels must follow various safety provisions that Airbnb user bypass.141 The MDA requires fire sprinklers and alarms in multiple dwellings, provisions that Airbnb hosts may not have since private residences are not required to follow such strict safety standards.142 Airbnb hosts currently have no legal obligation to make potential dangers apparent to guests.143

Zoning laws are hard to modify and can lead to complications or community disruptions.144 While Airbnb offers tourists a unique experience and allows hosts to make extra income, zoning may not be the best solution to its legal issues.145 This is because if a residential neighborhood's zoning changes to commercial for short-term renting, nothing prevents a person from opening up other short-term commercial operations in those areas as well.146

i. Policy Issues Resulting from Commercial Use in Areas Zoned for Residential Use .

Short-term renting raises questions about the effects it has on the stability of a community.147 From a policy perspective, economic and resident stability is at stake.148 In Ewing v. City of Carmel-by-the-Sea, the California Court of Appeals emphasized the importance of resident stability and the compromising effect short-term rentals have on the character of a community.149 The city council contended that the zoning was meant to create an area "for permanent single-family residential uses and structures and to enhance and maintain the residential character of the City."150 The commercial use of residential areas leads to more traffic, demand for parking, light and noise issues, and a need for public services to accommodate the influx of people.151 Transient residents do not have a stake in the community and do not join community activities.152 The Ewing court cites Miller v. Board of Public Works and Euclid v. Ambler Realty Co. to emphasize that zoning is essential to maintaining community character.153 Separating commercial and residential areas serves a purpose for the welfare of residents and "promote[s] and perpetuate[s] the American home."154

In United Property Owners Ass'n. v. Borough of Belmar, owners challenged zoning provisions affecting their residences.155 The owners took issue with "undesirable conduct" by transients and wanted to purge such people in order "to restore peace and quiet and other characteristics of neighborhoods where people . . . live in relative permanency."156 The court explained that "[zjoning laws are designed to control types of uses in particular zones,"157 but that ultimately in a vacation area, banning or strictly regulating rentals is an "arbitrary . . . restraint on use of private property."158 Bans on short-term rentals have typically been enforced to control stability and restrict owners from using residences for unauthorized purposes.159 Traditionally, problems arose because of seasonal rentals, but because of Airbnb, short-term rentals have become commonplace.160

ii. Violations of the Multiple Dwelling Act Set Precedents

Short-term rentals not only face resistance from neighbors and the community, but also from landlords who will evict tenants to maintain control of their properties.161 In a recent New York housing court case, Gold Street Properties v. Freeman, an Airbnb host violated her lease and the MDA by renting her apartment short-term.162 The court allowed the host to stay in her apartment, as long as she removed her listing from Airbnb and cancelled future guest reservations.163 This case sets a precedent that may result in difficulties for landlords who want to evict tenants for breaching their leases by renting short-term.164 The holding in that case is not a slam-dunk for Airbnb, but it provides hosts with greater protection against immediate eviction for short-term renting.165

In a case brought before New York's Environmental Control Board, an Airbnb host rented out his apartment,166 and was served with Notices of Violation for violating the MDA.167 However, the fines were dismissed on a technicality that allows short-term stays if the resident is present, and in this case, a roommate was there while guests were present.168

B. San Francisco 's Liberal View on Short-Term Rentals

San Francisco has chosen to adopt a decidedly liberal perspective on the operations of Airbnb than NYC, possibly because San Francisco calls itself the home of the company.. Although San Francisco is more open to home-sharing than NYC, it does intend to impose some limitations on the growing industry.

1.San Francisco 's Landlord-Tenant Liability and Landlord Abuse of Airbnb

Until recently, short-term rentals were illegal in San Francisco, like most areas of the country, because short-term rentals not only violated the San Francisco Administrative Code ("SFAC"), but they also usually violated lease agreements as well.169 For instance, one San Francisco resident needed extra income, so he rented his apartment through Airbnb.170 His landlord found out and notified him that he breached his lease and could be evicted.171

Generally, if the tenant ceases operations through Airbnb, evictions are remedied under a "cure or quit" notice.172 Many landlords dislike when tenants profit off of their property, and demand strict enforcement of the "no-rentals-under-thirty-days" law.173 However, because of "cure or quit" notices, many tenants can remove their Airbnb listings and avoid eviction.174 Some lease agreements prohibit subleasing, which includes short-term renting to transient guests.175 Therefore, when landlords are made aware that their properties are being rented through Airbnb, they commence eviction proceedings.176 Now that the proposed bill that sought to legalize short-term rentals has been passed, landlords will continue to face this issue and others like it.177

Landlords are not always the victims of short-term renting.178 Sometimes landlords abuse Airbnb for their own benefit, and to the detriment of their city.179 These landlords may pay tenants in breach of their lease agreements to move out and then utilize those spaces for shortterm rentals.180 In 2014, City Attorney David Herrera filed two lawsuits against landlords in San Francisco because they each used residential properties as illegal hotels, making those spaces unavailable to permanent renters while San Francisco was in a housing shortage.181

Removing residential rental units from the market has been termed "hotelization," which is what San Francisco's legislation on short-term rentals intends to prevent.182 The Ellis Act allows landlords to take properties off the market, but not without restrictions.183 The two lawsuits filed by the city were against landlords who converted residential units into illegal hotels, and charged rent well above what the Ellis Act permits184 San Francisco v. Lee concerned a landlord who took the property he owned off the market in 2006, with an Ellis Act rental cap of $1,087 per month.185 The landlord used the property as an illegal hotel before returning to longterm renting, with an extreme rental increase to a range of $4,200 and $7,038 per month.186

In the second lawsuit, San Francisco v. Yurovsky, the landlords took their three residential units off of the long-term rental market.187 In 2006, the landlords were served with Notices of Termination of Tenancy pursuant to the Ellis Act, San Francisco's Rent Stabilization Ordinance, and SFAC Section 37.9.188 Unless the landlords intended to "go out of the rental business" altogether, evicting tenants for the purpose of short-term renting is arguably illegal.189 These cases are pending in San Francisco, but the city's end goal is to obtain injunctions and monetary compensation for each day the violations occurred.190

Although San Francisco has had landlord-tenant issues, the city's Mayor, Ed Lee, supports Airbnb.191 Since Airbnb's start in 2008, the San Francisco Tenants Union has remained unwavering in its stance against the company, stating that it has "begun a process with city regulators to sue seven other landlords on similar charges."192 The lawsuits against the two San Francisco landlords send a strong message to Airbnb and its users that laws will be enforced until legal change is implemented.193

2.Airbnb Mimics Hotel Industry Tax Standards

Although Airbnb's home city is in San Francisco, it has sustained regulatory issues there prior to the passage of legislation pertaining to its regulation.194 Despite the conflict over Airbnb's legality and San Francisco's laws and regulations, Airbnb is determined to maintain a relationship with the city.195 Airbnb asserts its intention to.collect and pay taxes on its operations in San Francisco under the new short-term rental regulations.196 The taxes amount to fourteen percent of hosts' profits.197 Taxing hosts may be a setback for the Airbnb-host relationship, but it is a step in the right direction because allows the company to maintain relations with the city as Airbnb explores its newfound legitimacy.198 San Francisco could generate about $274 million by requiring Airbnb to pay hotel taxes on short-term rentals.199

Airbnb's payment of hotel taxes mimics the requirements of the hotel industry.200 Airbnb has put a lot of effort into trying to follow the law, but San Francisco's "arcane" and "difficult" tax laws make it so difficult that some Airbnb hosts claimed to have been denied the ability to pay taxes.201 Allowing Airbnb hosts to pay taxes under the new legislation gives Airbnb legitimacy by placing it within the realm of the hospitality industry, thus refuting claims that Airbnb's operations are comparable to other illegal operations petitioning to pay taxes in exchange for validity.202 Now that Airbnb will pay hotel taxes, it will no longer severely compromise the prosperity of the hotel industry and those who rely on it for jobs, or add to the housing crisis. Instead, it can continue to help San Francisco residents, but in a legal manner.203

3.San Francisco 's Past Housing Laws and the Proposed Legislation for Short-Term Rentals that Made the Jump to Legalization

San Francisco has chosen to embrace the changes that short-term rental platforms offer its community. The city is accepting home-sharing, but on its own terms through restricting regulations.

i. San Francisco 's Administrative Code

Airbnb's zoning issues are not limited to New York City. Airbnb has also encountered zoning concerns in San Francisco, in addition to tax and liability issues.204 San Francisco's legislation on short-term rentals is codified in the SFAC.205 Chapter 41A of the SFAC states that a permanent resident cannot rent out his residential unit for less than thirty days at a time.206 A similar version of this SFAC rule appears under San Francisco's Planning Code ("Planning Code"),207 which regulates business owners from converting residential units for commercial or transient purposes.208 The Planning Code states that a residential unit rented short-term alters the categorization of the unit from residential to commercial, which is why many opponents are demanding stricter reform of the short-term rental laws.209 Additionally, under Chapter 37.9 of the SFAC, a landlord can evict a tenant if a residential unit is rented in a way that violates the law.210 The Department of Building Inspection ("DBI") enforces these provisions, but often does not take action unless neighbors or landlords complain.211

ii. San Francisco 's Proposed Legislation Made Into Law

San Francisco is a pioneer in proposing to incorporate short-term rentals into local laws and regulations.212 David Chiu, President of the Board of Supervisors in San Francisco, created the legislation that sought to do this.213 The current SFAC Section 41A prohibits renting residential units, and prevents multiple dwellings from being used as illegal hotels.214

Legislation was passed in October that legalizes short-term rentals in a highly regulated manner, by limiting the rentals to ninety nights per year, and requiring permanent residents to occupy their homes for at least 275 days per year (sixty of which must be consecutive).215 The ninety-night limit could prevent San Francisco residents from getting displaced by Airbnb rentals.216 However, this legislation will not excuse tenants from violating their lease agreements with landlords.217 Hosts will be held to a higher standard, requiring them to maintain liability insurance and register their residences with the city.218 A registry of hosts will redact names, but will list addresses for landlords for eviction and lease enforcement purposes.219 This registry will incentivize hosts to maintain compliance with short-term rental laws in order to avoid sanctions or eviction.220 Fortunately for hosts, this legislation has a one-strike rule preventing landlords from evicting tenants on their first offense, but it does increase fee penalties for repeat offenders.221 Proponents of the legislation argue these changes are necessary to protect San Francisco's residents and the hotel industry so as to not worsen the housing crisis.222

iii.Opposition to the Legislation

Since short-term rentals have established a niche in San Francisco despite their illegality, this new legislation is necessary to regulate their permissibility.223 However, opponents assert that the legislation does not regulate short-term rentals strictly enough.224 Because of this skepticism, opponents and housing advocates have established a ballot initiative that rivals the legislation as a much more conservative counterpart.225 This initiative seeks to hinder Airbnb's ability to grow in San Francisco and would harshly regulate short-term rentals.226

Controversially, this initiative would reward witnesses who report hosts who rent their residences short-term.227 The initiative goes further by proposing that short-term rentals should only be allowed in commercially zoned areas, which would devastate Airbnb hosts in residential zones.228 Further, the ballot initiative agrees that there should be a registry, but the initiative seeks to increase visibility to the public.229 This initiative would also require hosts to get rentals approved by their landlords or homeowners associations, require Airbnb to confirm the host is registered, and make the host demonstrate proof of personal rental or homeowners insurance.230 The initiative threatens to damage Airbnb's operations and the company strongly opposes it; instead, Airbnb supports the new legislation as the best way to begin the legalization process for Airbnb's operations in San Francisco, despite the restrictions the new legislation imposes.231 If this ballot initiative went on to trump the passed legislation, reversing the harm it would do to the legality of short-term rentals would be nearly impossible.232

4.Shared City

Airbnb has made efforts to gain acceptance within the communities where the majority of its hosts operate. Most notably, Airbnb has partnered with Portland, Oregon to work with the community while allowing residents to utilize Airbnb's services.233 In doing this, Airbnb has portrayed itself as a company that gives back, offering cities services and funding that other companies do not.234 Airbnb ties itself to communities through Shared City, creating a connection that bonds cities with the company before creating a formal legal relationship. This non-legal relationship provides cities with large sums of tax revenue to put toward projects cities ideally seek to implement, but otherwise do not have the funds for.235 To win over the community, Airbnb has created an initiative that provides safer spaces, a boosted economy, and a way to benefit residents by supporting local businesses, encouraging entrepreneurs to pursue business ventures, and creating opportunities to make extra income to sustain a budget.236

Recently, Portland became the first city in the United States to narrowly legalize short-term rentals.237 Portland appreciated the sharing economy bringing people to Portland, but strictly regulates short-term rentals by only allowing one or two bedrooms to be rented at a time, requiring hosts to purchase a permit from the city, and requiring hosts to pass safety inspections.238 Portland vows to use some of the proceeds for affordable housing and to use Airbnb for lodging during emergencies.239

III. A Liberal Approach as the Catalyst Going Forward

Although NYC has valid reasons for rejecting short-term rentals, San Francisco's decision to embrace the change on its own terms is ultimately the best approach. As technology advances and people become more comfortable with the sharing economy as whole, it would behoove the nation to embrace, but regulate, the sharing economy while it is in its infancy.

A.The Sharing Economy is Here to Stay

Although the sharing economy has created copious amounts of legal issues within cities, it has also created a new norm. The simplicity of using the Internet to access almost anything has become the standard way to do everything from calling a personal driver to renting out homes for shortterm stays.240 Banning these online platform-based companies is not the way to remedy the legal and regulatory issues. NYC's conservative attempt to prohibit Airbnb altogether is unrealistic because hosts will continue to break the law. The most practical option is to model future laws on the regulations set out in San Francisco's new legislation as a launching point. Regulating companies with business models like Airbnb's from the outset is the best strategy, since its users have already proven they will use these services whether they are legal or not. Unfortunately, regulating these types of innovative companies is notoriously difficult, but societally beneficial in the long run. By regulating these companies, users have the opportunity to comply with the law, whereas if these services are available but illegal, users are pigeonholed into breaking the law.

Sharing platforms allow for a cheaper and more convenient experience, and in this era of technology, users will be unwilling to revert to an inconvenient or more expensive alternative. If these services are regulated and legalized, a more level playing field can be established between Airbnb and the hotel industry. Fair competition is an important part of business and sharing companies should not be exempt from competing.

B.Airbnb Should Be Treated Like Hotels

Although Airbnb does not seek to encroach on the hotel industry, it has caused some problems in that regard.241 The company competes directly against hotels and should not be immune to the fourteen percent tax requirement, zoning regulations, and liabilities that hotels must comply with.242 As Airbnb's Shared City initiative suggests, the company should be required to sustain some of the same safety precautions as hotels.243 Additionally, Airbnb should focus on the legality of its operations in larger cities where its influence is most heavily concentrated, like NYC or San Francisco, and where short-term rentals are more likely to be abused. Establishing overarching regulations to standardize home-sharing would create fair competition and continuity throughout this up-and-coming industry.

Creating an equal playing field between competitors within the same industry is crucial for Airbnb to be successful in American communities.244 Airbnb and other hosting platforms are not following the law and they cause disturbances within traditional industries that abide by regulations. Further, Airbnb should take more responsibility in educating its users on the local laws of places where Airbnb is prominent as well as provide clarity about necessary insurance coverage and the potential for legal complications.245 Regulating Airbnb would not only legalize its operations, but also create a safety net for users should they encounter legal issues in cities where it is still illegal.246 To further ensure the security of its users, Airbnb should take more responsibility rather than renouncing liability by claiming to simply be an online medium that exists to link hosts and guests to one another. It does not make sense for Airbnb to renounce liability when the operations it emboldens are the reason legal issues exist in the first place.

C.San Francisco 's New Legislation in Combination with Shared City

Airbnb welcomes regulations in the cities where it primarily operates. It is better for lawmakers to regulate a new industry in its infancy, in order to gain control early and to mitigate the risk of harm to consumers, operators, and surrounding industries. Hosting platforms like Airbnb are rapidly gaining popularity and are calling for the law to catch up with technology, so as to not irreversibly damage existing businesses and industries.

Airbnb has agreed to make it clear to hosts when they may be breaking the law by posting information on its website; however, the information currently available is vague and suggests that hosts should still familiarize themselves with local laws.247 The legal information on Airbnb's website needs to be more comprehensive for users because hosts are still responsible for Airbnb-related infractions.248 Ultimately, Airbnb and shortterm rentals are illegal in most places, so hosts who take a chance using Airbnb will run the risk of legal complications until legislation is amended.249

Now that San Francisco's proposed legislation has been passed, it should be implemented in tandem with the incorporation of Airbnb's Shared City initiative. The new legislation should also include requirements for safety regulations. Shared City should work in conjunction with cities' regulations to offer benefits to the community as a whole, not just to those who have chosen to host for extra income. NYC's treatment should not be further pursued because it just incentivizes people to find more creative ways to skirt the law. A preferable solution would be for Airbnb's operations to be incorporated into the laws of cities across the country, thus regulating short-term rentals and creating fair competition with the hotel industry, while simultaneously working with the community to economically benefit its local residents.


Airbnb has revolutionized the way people travel, and its innovative technology is here to stay. Despite the legal issues Airbnb has faced in terms of its legal liability, such as failure to pay hotel taxes, and zoning complications, it has produced a service that many hosts and guests are fond of. The legislation in San Francisco incorporating short-term rentals into the city's regulations should act as the catalyst for other cities affected by short-term rentals. Not only should home-sharing be regulated, but it should also work in tandem with Airbnb's Shared City initiative to contribute to local economies and businesses. Additionally, safety provisions should be added to existing regulations to make home-sharing a safer, more enjoyable experience for hosts, guests, and Airbnb. Proactively establishing boundaries and regulations for innovative companies like Airbnb is essential because the sharing economy is not decelerating.

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