Last weekend, I came across an interesting story on my Facebook news feed. It detailed how a New York comedian had rented out his apartment for the weekend using a popular website, AirBnB, only to come back and find that his apartment had been used to host a massive sex party (or a “XXX Freak Fest” as the comedian succinctly put it). What interested me wasn’t the illicit nature of the story; instead, I was curious about the legality of renting out one’s apartment for profit.
AirBnB is an online platform that allows users, known as “hosts”, to rent out their residences to third parties. Valued at $10 billion last week, AirBnB is a leader in what is known as the “sharing economy”, an economy built around individuals sharing or selling their goods or assets to others (think Zipcar, Craigslist and eBay). The types of AirBnB users can generally be broken down into two categories: those who rent out their apartment from time to time to make extra cash on the side, and those with multiple listings who use the service as a commercial enterprise. For both types of users, AirBnB and similar services, such as HomeAway and VRBO, can be an incredibly lucrative venture; AirBnB’s CEO stated in 2012 that the average AirBnB host in New York City made $21,000 per year.
However, this type of venture is not without its pitfalls. The comedian’s party resulted in $87,000 worth of property damage and he now faces eviction by his Landlord. In addition to facing eviction, hosts can also face hefty fines and back taxes. While those who use AirBnB as a business may have the resources to understand and comply with state laws, it can be a daunting task for individual hosts who are less sophisticated. For instance, although AirBnB provides some informative legal guidelines on their website, their main competitor, HomeAway, simply states that “users agree to abide by all laws, rules and regulations”. To make things more complicated, many state laws were written in the pre-sharing economy and thus are “unconstitutionally vague” (as stated by AirBnB in response to a subpoena issued by the New York Attorney General late last year).
New York Law
For those of you who live in New York, there are two laws that you should take into account before listing your apartment on AirBnB.
First, under the New York Multiple Dwelling Law (specifically, Chapter 225 of the Laws of New York State of 2010), it is a misdemeanor to rent out your apartment for less than 30 days. There is an exception, however, permitting occupancy for less than 30 days when the permanent resident is present. Aside from Chapter 225, there may also be specific building bylaws or provisions in individual leases that prevent such short-term leasing, such as prohibitions on running a commercial enterprise and on leasing your apartment to someone you’ve known for less than a year.
Second, under New York City’s Hotel Occupancy Tax law, hotel operators are required to collect and pay a 14.75% tax on room rentals. Although the word “hotel” doesn’t conjure up the image of a 400 square foot studio apartment, the New York City Department of Finance states that a “hotel” includes an apartment, boardinghouse and bed-and-breakfast. Like the New York Multiple Dwelling Law, there are exceptions, however. The tax is not required for (1) rentals of only one room in an owner occupied home; (2) rentals for less than 14 days during any year; (3) rentals for fewer than three occasions during any year; and (4) rentals for a continuous period of 180 consecutive days.
Though the legal issues on the table have yet to be put to rest, one thing is clear – if you intend on using services like AirBnB and don’t want to face eviction or government fines, there are at a minimum four steps that you should take:
- Review the Terms and Conditions of the service you are using. Most often these can be accessed by a link at the very bottom of a service’s website.
- Review your lease or building bylaws to make sure that there are no provisions preventing short-term rental. Also be mindful of other rules that may come into play such as noise and common area policies.
- Review your state’s occupancy laws. In New York, if you plan on renting out your apartment for less than thirty days, make sure that either you or a roommate are present while your guest stays over.
- Review your state’s tax laws. If New York City’s Hotel Occupancy Tax may be applicable to your rental, report income earned from the rental on federal, state, and city tax forms.
While it’s important to be aware that these steps may not cover the gamut of regulations that a host may be subject to, they are a good first step towards minimizing risk. After all, as the title of this article suggests, if you do not follow them, you may face more than bad guests – large fines and eviction could be on the way.