Hotels girding for a fight against AirBnb

City regulators and the hotel industry want to crack down on Airbnb and other sites. By Lisa Fickenscher  Crain’s New York Business

August 19, 2013 5:00 a.m.   crainsnewyork.com

Hotels girding for a fight against Airbnb

Meanwhile, city regulators and Attorney General Eric Schneiderman are looking into cracking down on companies that help folks rent out their apartments to tourists.

Each week, Mayor Michael Bloomberg's Office of Special Enforcement fields about 10 complaints about residential apartments that are being rented out to tourists for overnight stays—which is illegal in New York but one of the hardest laws to enforce.

While thousands of New Yorkers advertise their apartments on Airbnb, OneFineStay.comand VRBO (which stands for Vacation Rentals by Owner) as an alternative to pricey hotel rooms, some of their neighbors are complaining about the coterie of strangers filing into their buildings on a nightly basis. Government agencies are looking at new ways to regulate this shadow industry, while hoteliers are mapping out strategies to punch back at what they see as unfair competition.

Recent well-publicized cases have fed a new urgency to do something about this segment of the so-called sharing economy. One involved a tenant who was fined $2,400 by a court for renting out his East Village apartment; another case highlighted the effort of landlord Ken Podziba to evict a tenant in his building who reportedly made $500,000 over four years running a business renting her apartment to tourists.

"These people [who rent out their apartments] don't pay taxes," said Vijay Dandapani, chief executive of Apple Core Hotels in New York, "The web sites may tell them they need to pay all taxes, but they don't require it."

Airbnb, however, does submit tax information on the rental income of its hosts to the federal government.

City officials say they are driven by concerns over public safety issues, apartments, for example, that don't meet the fire prevention standards that hotels are required to comply with. But enforcing a 2010 state law that makes it illegal to rent out an apartment for less than 30 days when the owner is not at home, falls to a meager staff at the Office of Enforcement, which investigates cases when a complaint is filed.

"This office focuses on quality of life issues citywide, but illegal hotels takes up most of our time," said a city official.

The agency has logged 3,200 complaints and 6,600 violations since 2006 when Mayor Michael Bloomberg expanded enforcement to handle the illegal hotel issue.

About two months ago, a city hall official met with executives from San Francisco-based Airbnb, asking the five-year-old company to work with the city on a new business model that doesn't run afoul of the law. Nothing yet has come of those conversations.

Airbnb fought passage of the law three years ago and is lobbying for new legislation that allow people to rent their apartments as hotels if they pay hotel occupancy taxes and make safety modifications to their apartments like adding smoke detectors among other stipulations.

Airbnb says that 87% of its hosts are renting out their primary residence for less than four weeks a year and that many of them are home during the rental, according to a survey the company asked its hosts to complete.

For now, enforcement has focused on landlords and tenants who rent out residential buildings or units rather than on the companies like Airbnb that facilitate the rentals.

The problem is that many hosts are unaware that they may be violating the law—if they even know that one exists. Earlier this year, an East Village resident, Nigel Warren, who advertised his apartment on Airbnb, was fined $2,400 by an administrative law judge. Later, Mr. Warren blogged about his experience complaining that Airbnb should have been more explicit in informing hosts about the laws. Airbnb responded by defending him in court.

Airbnb acknowledges that its hosts were lacking knowledge about local laws concerning illegal hotels.

In May, the company added a pop-up screen when hosts register their apartments, advising users to "review their local laws before listing their space on Airbnb." It says the company "is working with governments around the world to clarify these rules so that everyone has a clear understanding of what the laws are."

Industry sources say a chief reason Airbnb and its competitors have not been targeted by regulatory authorities is that they are protected under section 230 of the federal Communications and Decency Act of 1996, which originally sought to regulate Internet pornography. Section 230 provides safe harbor for Internet service providers that simply provide a platform for online content, exempting them from liability.

According to sources who have met with the attorney general's office, Mr. Schneiderman's staff is looking at ways to get around this legal conundrum. A spokeswoman for the attorney general declined to comment for this story.

The hotel industry is hoping to organize a class action lawsuit against Airbnb, said Mr. Dandapani, a director of the Hotel Association of New York City and a member of its executive committee. He believes the government could also compel Airbnb and its competitors to collect disclosure of tax forms, essentially forcing the companies to prove that their hosts are paying all of their taxes.

"We are not sitting still," Mr. Dandapani said. "They are violating the law and we are the affected class."