In a victory for the New York City hotel industry, a New York judge has rejected Airbnb's legal challenge to a New York City law that requires short-term rental properties to be registered with the city. The municipality will begin to apply the law, known asLey Local 18 (LL18)or the Short-Term Rental Registration Law of September 5, 2023.
Background of the case
Over the past decade, the popularity of short-term rentals through Airbnb.com and other similar online platforms has skyrocketed, with the number of listings in New York City growing exponentially in the 2010s. However, the rapid growth led to legislative setbacks, including the most recent LL18.
In 2016, New York State passed a ban on short-term rental advertising that violated the Multiple Dwelling Act (MDL); Considering that almost all short-term contributions fall into this category, the Law constituted ain factProhibition of this type of advertising. Airbnb sued to block that law, and the lawsuit was ultimately dismissed in exchange for a promise not to enforce the law. New York City then passed a law that placed monthly reporting requirements on Airbnb for its listings in the city. Airbnb sued again in 2020, and that lawsuit was also settled, with the city agreeing to limit the types of rentals subject to reporting requirements and that reports had to be filed quarterly instead of monthly.
Meanwhile, however, short-term rentals continued to proliferate in New York. These transactions were undoubtedly lucrative for homeowners, tenants, and other short-term renters, and also served as financial support for short-term rental reservation services. However, the economic benefits of short-term apartment rentals cannot hide the fact that almost all of these rentals violate the MDL, such asAmong others, were for less than 30 days and the permanent resident did not stay at the residence during the guest's stay. There were many other negative effects of the short-term rental, includingAmong others:
- Since residential apartments are often not built with the security measures required in hotels intended for transient guests, short-term rentals of such apartments violate New York City's fire code.
- Reduced housing supply, creating upward pressure on rents and reduced affordability for renters.
- Declining quality of life as constant flows of transient residents changed the character of buildings and even neighborhoods and potentially increased security concerns.
- Short-term apartment rentals reduce demand for traditional hotel stays, negatively impacting employment in the hospitality industry and depriving New York of occupancy tax revenue.
Consequently, New York City went back to the drawing board and, determined to avoid a repeat of previous failed legislative attempts to curb short-term rentals, enacted LL18 on January 9, 2022. The law requires that hosts short-term rentals from registering with the Mayor's Office of Special Enforcement (OSE) and prohibits short-term reservation services from processing transactions for unregistered short-term rentals. LL18 also requires OSE to maintain a list of prohibited buildings. This list includes buildings where short-term rentals are prohibited, either by law (such as New York City Housing Authority (NYCHA) housing or rent-regulated buildings) or by building occupancy and lease agreements. . In fact, LL18 gives landlords the right to notify the OSE that short-term rentals are prohibited in their building. At the beginning of 2023, OSE, in charge of enforcing the LL18, publishedfinal regulations(The rules) for the application of the statute. Among other things, the rules impose financial penalties on reservation services that list units that are not eligible for short-term rental under LL18.
After the rules went into effect, Airbnb sued the city and OSE in New York state court asking for:Among others, prohibit the application of the rules and annul them. Airbnb argued that the rules should be struck down and set aside because 1) they allegedly violate the 2016 and 2020 settlements resolving Airbnb's earlier lawsuits, 2) they are allegedly "arbitrary and capricious" in violation of state law, 3) they are not properly enacted under state law and 4) is supposedly preceded by federal law.
Judge Arlene Bluth of the New York County Supreme Court rejected each of these arguments and granted the defendants' contrary motion toReject Airbnb's request..
The court easily dismissed Airbnb's argument that the rules should be struck down as "arbitrary and capricious." Airbnb's basis for this argument was that the regulations were allegedly "burdensome, ineffective, costly, and failed to take into account reasonable alternatives" (Order No. 6). However, the court noted that its task was "to assess whether these rules have a rational basis, not whether they solve a problem in the most efficient way" (ID.7) and applying such a test that the rules "are completely rational" (ID.).
Evidence and testimony presented by the city and OSE determined that "there were 43,000 illegal short-term listings by Airbnb in 2018 alone...that OSE received more than 11,934 complaints (2017-21) regarding these rentals and issued approximately 15,665 violations arising from inspections in connection with short-term rentals" (ID.).
The court then determined that LL18 and the rules were correct answers:
It is clear that respondents have identified a significant problem – the continued prevalence of illegal short-term rentals – and these regulations attempt to address this problem by requiring each listing to have a registration number. It is an inherently rational strategy. Requiring that a listing have a registration number and that Airbnb only accept rates for listings with a valid registration number makes a lot of sense. It is a method designed to streamline the process of ensuring that only qualified spaces are shown on Airbnb or other listings.
In addition, the court noted that the regulations, to the extent that they include a list of prohibited buildings, "provide a logical way to help prevent a tenant whose lease excludes short-term rentals from doing so anyway," and that the obligation of a reservation service to verify the eligibility of an entity before it can accept fees "is not an excessively onerous task" (order at 8). Finding that the regulations rationally further the purpose of LL18 and are not arbitrary or capricious, the court concluded: “The proposed registration system under Local Law 18 and the regulations at issue make it easier to identify many illegal short-term rentals.Forare listed on Airbnb and create a financial incentive for Airbnb and hosts to make sure they comply with the law" (ID.) (emphasis in the original). The court also found it irrelevant that Airbnb spent more resources to ensure compliance, noting that Airbnb earned $85 million in revenue from New York City alone in 2022, with much of that revenue coming from illegal short-term rentals. . (ID.).
The rest of Airbnb's arguments fared no better. The court held,Among others:
- The rules do not violate the 2016 and 2020 settlement agreements, as those agreements relate to different laws and are not related to the rules (order of 9-10)
- The rules are properly enacted in the sense that they are based on valid legislative delegation, are within the power of the city police to enact them, and were adopted in accordance with applicable administrative rules (ID.cl 10-12)
- the federal Communications Decency Act (CDA) does not take precedence over the Regulations, as liability under the Regulations (unlike the CDA) is not based on Airbnb's role as "publisher" (ID.at 12)
As a result of Judge Bluth's ruling, Airbnb and other short-term rental booking services cannot escape the scope of LL18 and the regulations, the enforcement of which will begin in a few weeks. Consequently, the number of short-term rentals in New York through these booking services is likely to decline significantly, and it is safe to assume that demand for traditional hotel stays in New York City will likely increase by a similar amount. . While Airbnb can still appeal Judge Bluth's ruling, the industry can expect LL18 and the rules to be used as models for other local governments across the country (and perhaps the world) looking to restrict short-term apartment rentals. period within its borders.