Airbnb Gets Halt to Enforcement of N.Y. Sublet Restrictions

  • Company filed lawsuit in federal court after law took effect
  • Measure targeting short-term rentals backed by hotel industry

The city and state of New York said Monday they would hold off enforcing a new law restricting short-term apartment sublets against Airbnb Inc. until the company’s lawsuit over the issue is resolved.

That was a reversal from earlier indications that the restrictions would be enforced immediately after New York Governor Andrew Cuomo signed them into law on Friday. The home-sharing company sued to block the measure just hours after Cuomo’s action.

The law prohibits the advertising of accommodations that can’t be legally rented out for less than 30 days, with violators facing fines of as much as $7,500. Airbnb said it faced “staggering penalties” if the law were enforced because it’s not clear if websites or online platforms might be held liable for the ads.

While the city and state agreed not to prosecute Airbnb, officials can still go after apartment dwellers who flout the restrictions in advertising prohibited units on the Internet, including Airbnb’s website.

The San Francisco-based company, which has a $30 billion valuation and investors including Sequoia Capital Operations LLC and Kleiner Perkins Caufield & Byers LLC, is facing legal headwinds on a number of fronts, as cities and the hotel industry fight against the bite it has taken out of their business -- and tax revenues.

New York, which represents the company’s single-largest market in the U.S., is the latest city seeking to block Airbnb from helping apartment residents sublet their units. The laws have been pushed by the hotel industry, which has faced sharp revenue declines as a result of the upstart. Cities, in many cases, rely on hotel occupancy as a source of tax revenue.

Bed Taxes

New York City, with more than 100,000 hotel rooms, received $560 million in revenue from so-called bed taxes in 2015, according to a report by the state comptroller’s office. But revenue has begun to edge lower, with officials citing the effect of companies like Airbnb.

New York state’s law prohibits apartment dwellers from advertising their units for short-term rental while they are away. People are allowed to rent a room as long as the resident is staying there too. San Francisco and Santa Monica, California, have passed similar laws.

Airbnb has said the law violates the company’s free-speech right to advertise its business and conflicts with U.S. laws intended to promote the growth of Internet-based companies. Airbnb raised a similar defense in a lawsuit over San Francisco’s law, eliciting a skeptical response from a judge at an Oct. 6 hearing.

In its filing Monday, New York City said it would continue to "take any procedural and administrative steps necessary" to enforce the law if it is ultimately upheld.

The case is Airbnb Inc. v. Schneiderman, 16-cv-08239, U.S. District Court, Southern District of New York (Manhattan).

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