Avalara MyLodgeTax > Blog > Lodging Taxes > As the Airbnb battle heats up, lawsuits follow

As the Airbnb battle heats up, lawsuits follow

  • Aug 6, 2018 | Jennifer Sokolowsky

vacation home

As short-term vacation rentals grow in popularity — facilitated by online platforms including Airbnb, VRBO, and HomeAway — communities are increasingly looking to regulate them. Within just the past few months, San Diego, New Orleans, Boston, and New York City have all tightened up their rules regarding short-term rentals.

While few cities are banning short-term rentals altogether, they’re aiming to address issues associated with a critical mass of short-term rentals. These include long-term housing being converted into short-term rentals while affordable housing becomes more scarce; neighborhood disruptions due to an influx of short-term renters; and the fact that hotels and Airbnbs often operate under different standards and taxation.

In many places, these issues pit the hotel industry, affordable-housing advocates, and neighborhood activists against short-term rental hosts, represented by powerful short-term rental platform companies, especially Airbnb. Airbnb has been proactive in negotiating tax-collection agreements with many governments and is an active participant in any discussion about regulating short-term rentals.

For short-term rental hosts, many of whom started offering short-term rentals under much less regulated conditions, these changes bring more paperwork, more expense — and uncertainty about the future of their business.

Backlash against regulation

Increased regulation is also bringing a backlash in the form of lawsuits against city rules. In Miami Beach, a short-term rental host recently sued the city, stating that the city’s steep fines fines are “excessive punishments” that violate the Florida Constitution. The suit also claims the rules violate the state constitution’s equal protection provision because they don’t apply to residents in an area of the North Beach neighborhood. The suit seeks a permanent injunction that would prevent the city from fining short-term rental operators.

In Miami Beach, operators are charged a fine of $20,000 on the first violation of the short-term rental code. Each subsequent fine increases by another $20,000 and can go as high as $100,000. Since March 2016, Miami Beach has issued $12.1 million in fines.

In a slightly different twist on the theme of short-term rental operators suing over local laws, one man in New York City is suing the city, saying officials retaliated against him for speaking out in favor of short-term rentals. According to the suit, the city slapped Stanley Karol, a Brooklyn Airbnb host, with fines of up to $30,000 for converting his basement into an illegal hotel and failing to meet fire codes.

Airbnb is financially supporting Karol in the lawsuit, which was filed just before the New York City Council voted to require Airbnb and other short-term rental platforms to give the city information on hosts providing short-term rentals through those companies. The new law will make it much easier for the city to find out who’s offering short-term vacation rentals and whether or not they’re following the law. Mayor Bill de Blasio is expected to sign the ordinance.

Airbnb itself has sued several cities over legislation, including suits against San Francisco, Anaheim, Santa Monica, and New York City in 2016. All of these legal challenges were based on the idea that the cities’ regulations were violations of the federal Communications and Decency Act, which states that websites cannot be held legally accountable for content published by third-party users. All of the lawsuits were settled except in Anaheim, which altered its short-term rental laws.

In San Francisco, the settlement with Airbnb resulted in the city requiring Airbnb and HomeAway to have all hosts registered with the city for short-term rental permits by January 16 of this year. The new rules caused short-term rental listings in San Francisco to plummet as Airbnb and HomeAway pulled unregistered listings off their sites.

Suing to stop short-term rentals

Short-term rental hosts and platforms aren’t the only ones suing over short-term rentals.

In Highland Park, Illinois, a homeowners association in an upscale neighborhood is suing over an association property that offers short-term rentals. The property is a six-bedroom, eight-bathroom home owned by Dr. Bal K. Bansal that can accommodate 15 guests and rents for up to $773 per night. The association says renters of the home regularly disturb the neighborhood with loud parties and damage to nearby properties. As of April, the association had levied fines totaling more than $40,000 against Bansal for violating the association’s requirements that all leases must last at least a year. The association’s lawsuit is seeking an injunction to block such rentals.

In another case, a major residential property landlord in Miami sued Airbnb itself for allegedly failing to stop its hosts from subletting apartments in buildings where it is prohibited by property policy. Airbnb cited the federal Communications and Decency Act in seeking to get the lawsuit thrown out, but a Miami-Dade circuit judge recently ruled that the suit would be allowed to proceed.

Meanwhile in Texas, the state Supreme Court recently ruled in favor of a Texas homeowner whose homeowners association pressed to restrict his short-term rental activity. Kenneth Tarr rented out his home near San Antonio for short terms in 2014, but his homeowners association argued that he was not allowed to do so, since the association’s deed specified that his home could be used as a “single family residence” for “residential purposes” only.

The Supreme Court took the view that “So long as the occupants to whom Tarr rents his single-family residence use the home for a ‘residential purpose,’ no matter how short-lived, neither their on-property use nor Tarr’s off-property use violates the restrictive covenants in the Timberwood deeds.”

A California court recently came to a similar conclusion about the power of a homeowners association to ban short-term rentals, although for very different reasons. The court ruled against a homeowners association in a coastal neighborhood in Oxnard, saying the HOA doesn’t have the authority to ban short-term rentals and should have gone through the California Coastal Commission to get approval for its ban.

In limbo

While the outcome of pending short-term rental litigation has yet to be seen, it’s clear that more such suits could follow. While some of the outcomes of these legal battles may ultimately benefit short-term rental hosts, legal proceedings can take time, leaving all parties in legal limbo. In the meantime, having short-term rental issues decided by the courts contributes to the uncertain atmosphere that’s becoming more and more the case for short-term rental operators. 

Lodging tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Jennifer Sokolowsky
Avalara Author Jennifer Sokolowsky
Jennifer Sokolowsky writes about tax, legal, and tech topics. She has an extensive international background in journalism and marketing, including work with The Seattle Times, The Prague Post, Avvo, and Marriott.