The Sharing Economy Part 2 of 3

In Part One of this series, I noted the explosion in the Sharing Economy. You can’t go a single day without reading about Uber’s $50B valuation, Airbnb’s $17B valuation, or some other Sharing Economy venture.

Uber of course is under tremendous pressure due to the questionable legality of a portion of their business in many cities. As for Airbnb, simply Google “Airbnb Hell Stories” for an eyeful. This part dives into the legality of Airbnb style rentals. First though, I am not an attorney. I am a professional temp housing company owner who wants you to use my service, you may see a bias in my blog. Please note though I have attempted to be as accurate as possible.

In regard to Airbnb or many Craigslist listings, the under 30 day rentals are almost always illegal. They often are offered in buildings not zoned as hotels. For rentals of less than 30 days in length, unless you are renting from a hotelier in a building zoned, built and taxed as a hotel, you are at risk – sometimes life and death risk. If an employer allows rentals to be paid for by corporate cards in unlicensed hotel operations, they too are potentially at risk. An employee who receives payment for a rental by their employer should have limits on what types of accommodations he or she can seek when the company is involved if the company wants to shield themselves.

Risk comes from two areas. The first is “Fire and Life Safety”. Hotels are built to rigorous city zoning codes. These building codes require the hotel to evacuate guests in a fire or other threatening event quickly. The codes almost always call for wider stairwells, a higher level of fire suppression, a higher degree of use of materials that slow a fire, and other key life saving features. Apartment complexes, condo properties and single family homes rarely have these protections as they are designed for permanent renters.

The worst case scenario is the death of an Airbnb guest in a rental in an apartment fire. Say you rented a private apartment not zoned as a hotel for five nights in downtown Chicago. You are on the 38th floor, unfamiliar with the building, and die before you can get out. The family of that renter would have recourse against the Airbnb host, the property management company managing the building, the building owner and possibly even Airbnb. Airbnb has recently added language to their agreements advising all parties that the host is the person who must insure legality of their rental. I find that interesting as a way to shove off liability. Yet they know full well 90% of all their stays are not legal. I doubt they want to reduce 90% of their listings, to do so would crash their $17B valuation. With this in mind, many juries might include Airbnb in the chain of liability in a court case.

The next risk is compliance to apartment building, condo HOA, and other House Rules that prohibit illegal short-term rentals on their properties. An interesting trend has developed in New York City. City zoning officials simply do not have the time to police the thousands of illegal listings on Airbnb, Craigslist and other Sharing Economy listing platforms. Instead, the city is going after apartment owners who do not self-police these illegal rentals. The city sends a single or multiple listing telling the building owners/managers they must rid themselves of the listing. The process is working, landlords, co-op boards, and condo HOA’s are sending eviction letters, or threatening eviction.

The last component to this is one with the most press – payment of hotel taxes. Some would think if a city successfully collects taxes the rental is then legal. This is not true on less than 30 day stays. The host may be in compliance with payment of hotel tax, but the collection of taxes does not in any way diminish the liabilities of short stays in apartments not zoned as hotels. The host, building owner, and manager would not be shielded from liability simply because taxes were paid.

In conclusion, cities are struggling to catch up with this new Sharing Economy. The bridge period will result in a great deal of confusion, until court cases create precedence. This is not to say these rentals do not have a place. They can be a wonderful options for a certain class of traveler willing to trade risk for rewards of a lower price or more unique housing option. That said, corporations may want to seek legal counsel before paying for these rentals found by their employees, or having these programs as part of their travel and relocation programs.

In Part 3 of 3, I will explore the rental dynamics or renting from Sharing Economy amateur landlords proving temp living versus the dynamics of renting from professional temporary housing companies. The devil is in the details!

-Gavan James

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