To Airbnb or Not to Airbnb
One of the most divisive subjects to hit New York Real Estate in years, the battle over short-term rentals continues to rage. My partner, Matt Lehrer, gives the 411 and plays referee...
New Yorker as Hotelier
Let's face it, as New Yorkers, we live in a very expensive city. As we have watched residential real estate prices skyrocket, it is no wonder that many NYC residents have decided to rent out their apartments to earn some extra cash. Just as we have become accustomed to sharing our cab ride with a stranger (Uber, Via, Lyft, etc.), New Yorkers have taken to Airbnb to share or defray their living costs. Some see the advent of Airbnb as a great resource which allows travelers to experience a city in a less expensive and more intimate way while allowing homeowners to capitalize on the value of their real estate. On the other side, some have raised numerous arguments for prohibiting Airbnb rentals, mostly focusing on safety issues and a severe housing shortage. Airbnb opponents and New York City officials argue that holding thousands of rental units off the market, for short-term rental purposes, effectively skews the real estate market by reducing housing supply. This reduced housing supply, in the face of an unlimited demand for rental housing, serves to increase rents for New York residents. Unfortunately (or fortunately depending on your position) there are specific New York City and State Laws prohibiting or severely restricting one's ability to earn money by offering up his or her apartment for a short-term rental.
Is Airbnb legal in New York?
Before you jump on the bandwagon and become a hotelier, you should carefully take a look at the applicable laws as they relate to short term rentals in New York. The New York State Multiple Dwelling Law (amended in 2010) states that one cannot rent out an apartment in a Class A multiple dwelling for less than 30 days, unless a permanent resident is present during the rental period. Even if your property is not a Class A multiple dwelling, you are not necessarily off the hook, as the New York City Administrative Code would make such a short term rentals illegal unless the building's certificate of occupancy expressly authorizes such type of use.
What does that mean? Unless the property you seek to rent out is a one or two family home (which are both exempt from this law), it is illegal to rent your entire apartment for a period of less than 30 days. Therefore, those of you looking to make a quick buck by renting out your one bedroom apartment for a holiday weekend, would be in clear violation of the law. However, it may be lawful to rent out a spare room in your apartment for less than 30 days so long as you are residing there during the entire duration of your guest's stay. Therefore, if you want to share your apartment with a stranger for a holiday weekend, you may be safe under applicable law; but remember, even though your apartment sharing may be permissible under applicable law, you must still comply with the terms of your own lease or with the rules of your co-op or condo (more on that below).
Just because you are operating within the confines of the New York State Multiple Dwelling Law does not mean you are in the clear. Even if you satisfy the law's requirements (that is, your building is not a Class A Multiple Dwelling; or you are residing in the apartment during your guest's entire stay; or your Airbnb rental term is for more than 30 days) you are still subject to the terms of your own apartment lease or the rules and regulations established by your co-op or condo.
Almost every residential lease has a provision that prohibits you from subletting your apartment without the prior written consent of your landlord. Doing so would be a breach of your lease and ultimately might lead to your eviction from the apartment. While your landlord cannot unreasonably deny your request to sublet, unless your lease grants you the right to sublet, any such request would need to comply with the strict guidelines of Real Property Law 226-b. Accordingly, a request to sublet for less than 30 days would hardly be deemed reasonable under RPL 226-b. Suffice it to say that if you are a renter, your lease likely prohibits you from using Airbnb to rent out your apartment.
If You Own A Co-op or Condo
If you own a co-op or a condo unit, you will be similarly restricted in your ability to rent out your apartment on Airbnb. Almost every co-op in New York strictly limits or prohibits subletting. Even if the co-op rules allow subletting, most co-ops prohibit sublets for less than one year. While condos typically do not restrict a unit owner from leasing a unit (which is one of the benefits of owning a condo), condo rules almost always prohibit leasing for less than one year. In either case, before the proposed tenant is permitted to occupy the apartment, the apartment owner and proposed tenant must submit a rental application for approval. Thus, renting out your apartment without appropriate consent can have significant legal and financial consequences.
What does the future hold for Airbnb in New York City?
There is no question that Airbnb short term rentals are rampant in New York. As a result, government officials, including the New York City Council and the New York State Attorney General, have been paying a lot of attention. In October 2014, the New York State Attorney General put out a report on Airbnb rentals, indicating that during the period January 1, 2010 through June 2, 2014, Airbnb short-term bookings experienced a ten-fold increase in revenue. In 2014, revenue was approximately $282 million (rapidly gentrifying neighborhoods such as Hell's Kitchen and Chelsea, which accounted for most of the Airbnb revenue). By all accounts, these numbers are likely conservative estimates. Furthermore, according to the report, 72% of the units being offered on Airbnb for private short-term rentals were in violation of applicable New York State and New York City laws.
In light of its prevalence, New York City is cracking down on Airbnb. In an effort to eradicate illegal Airbnb sublets, Mayor de Blasio has committed $10 million to strengthen enforcement efforts. While enforcement efforts have been largely focused on multi-family building owners who hold many rental units off the market (essentially turning rental buildings into illegal hotels) the Mayor has made it clear that he plans to go after individuals who violate the law as well. Individuals found to be in violation of these laws are already subject to a fine of $1,000 for a first time offense; and beware, the City Council has recently proposed legislation that would increase the fines to $10,000 for a first offense with a maximum fine of $50,000.
In addition to a government crackdown, apartment building owners are also cracking down. Last year, Related Companies evicted a rent stabilized tenant from its MiMA apartment tower in Hell's Kitchen after it was discovered that the tenant was renting his 2 bedroom apartment on Airbnb.
As you might expect, there is a cottage industry popping up to capitalize on Airbnb's popularity. Companies such as Guesty, Flatbook, Onefinestay and Properly provide platforms to support short-term rentals and to assist those who wish to rent out apartments through Airbnb. These companies might mark a turning point for co-ops and condos looking to loosen their restrictive subletting policies. According to a 2015 New York Times article, Onefinestay has begun contracting with co-ops and condos to act as their exclusive home sharing partner. Pursuant to these agreements, the co-op or condo would receive a portion of the rental proceeds. In theory, such an arrangement could be beneficial for small co-op and condo buildings as it would allow the building to profit, enhance their financials and perhaps result in lower monthly carrying charges for unit owners.
Given the current state of the law, two things are crystal clear: First, except for a few limited circumstances, short-term rentals (less than 30 days) are illegal in New York; and secondly, it is unlikely that the law will change anytime soon to expand the basis on which short-term rentals are permitted. That said, the fight for Airbnb legitimacy in New York is far from over. In November of 2015, San Francisco residents defeated a ballot measure which, if approved, would have further restricted short-term rentals. It is reported that Airbnb spent $8 million to defeat that ballot measure. Similarly, the company has pledged enormous financial resources towards a grass roots effort to challenge applicable New York Law. With so much at stake on both sides of the argument, this battle is sure to rage on.
On June 17, 2016, the New York State Senate passed a Bill, amending the New York State Multiple Dwelling Law, making it illegal to advertise entire class A dwellings for less than 30 days. Pursuant to this Bill, violators would be subject to a $1,000 fine for the first offense, $5,000 for a second offense and $7,500 for a third offense. The next step in the process is for New York State Governor Andrew Cuomo to either sign or veto it. Stay tuned as this issue is far from over....
About Matt Lehrer
Experienced in the areas of commercial/business transactions, real estate transactions, and insurance law, Matt brings a unique and well rounded perspective to his legal practice. Formerly the Managing Director and Associate General Counsel to a real estate brokerage and advisory firm, Matthew has expertise in representing tenants and landlords in the negotiation and drafting of commercial leases and representing building owners in connection with drafting, reviewing and negotiating multimillion-dollar construction contracts. As a Partner at Gitter & Lehrer PLLC, Matt now focuses his practice on representing buyers and sellers of high-end residential, commercial and mixed use real estate. Matt is a frequent lecturer to the real estate industry and a contributor to 42nd Street Mag and to this blog.