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Landlords and tenants: To Airbnb or not Airbnb, that is the question

January 26, 2016

If you own or occupy residential real property, a question may come to mind. As Shakespeare might have put it, “To BNB or not BNB, that is the question.”

As most of our readership knows, Airbnb is an online marketplace that connects people looking to rent their residences with people who are looking for something less expensive and different than your standard hotel experience. According to published reports, travelers can search for and book Airbnb units in close to 200 countries worldwide. Short for “air mattress B&B,” Airbnb has grown from appealing to the couch potato and budget conscious Grateful Dead set to more upscale travelers simply looking for a different or creative experience. Meanwhile, state and local governments like to do what government entities do, which is regulate and, above all, collect taxes. That’s primarily the reason Airbnb is not very popular with state and local governments. And, speaking of Shakespeare, “There’s the rub.”

Among the objections that governments and regulators offer regarding Airbnb are its ability to undermine landlord-tenant law or subvert rent control ordinances (such as removing tenants for the purpose of getting higher short term rents from short term occupants). The service also raises the specter of hordes of touristy types transforming residential neighborhoods into revolving hotel districts. Additionally, property owners may fret about Airbnb’s ability to avoid accountability over safety regulations.  And last  but not least, there’s the eternal issue of the government’s desire to collect taxes.

The problems faced by Airbnb providers was recently illustrated in the case of Chen v. Kraft, decided earlier this month by the Appellate Division of the Los Angeles County Superior Court. The defendant, Ms. Kraft, occupied a rent-controlled unit in the Venice area of Los Angeles, a very popular area near the Pacific Ocean thought by many as hip and Bohemian. Kraft decided to make some extra money on Airbnb by listing the attic of her rental unit, which she called a “loft,” to which Ms. Kraft’s predecessor landlord expressly agreed in a lease addendum.

After Ms. Chen became Ms. Kraft’s landlord, Ms. Chen commenced an eviction proceeding. She alleged among other things that renting out the unit was illegal because the premises was located in an R-1 zone (one-family dwelling) which did not permit hotels or apartments — a ground for eviction under the Los Angeles Municipal Code. Although the evidence in the case also included a City of Los Angeles Tax Registration Certificate demonstrating Ms. Kraft’s payment of Los Angeles’ “Transient Occupancy Tax” with respect to the premises, the court was not inclined to find that the tax payment by Ms. Kraft validated the Airbnb agreement at issue. The trial court granted summary judgment in favor of Ms. Chen, and the Appellate Division agreed. Per the Appellate Division, the Airbnb agreement at issue constituted “an illegal contract in violation of existing regulations, and was therefore void and unenforceable.”

Thus, in Los Angeles, a court has decided you can’t put your unit on Airbnb, and if you do, the arrangement will be adjudicated illegal. Other cities, including New York and San Francisco, have also enacted legislation addressing temporary rentals such as Airbnb, with attendant slings and arrows of outrageous fortune. 

The takeaway is this: If you’re deciding to BNB or not BNB, you should perform some due diligence to make sure that your host municipality fosters a supportive environment.  And just as importantly, you must satisfy yourself that your listing complies with applicable codes and regulations.

Update: An earlier version of this article indicated that Ms. Chen had paid Los Angeles’ “Transient Occupancy Tax” for the unit in question. She did not; Ms. Kraft did.