In a win for New York City's hospitality industry, a New York judge has rejected Airbnb's legal challenge to a New York City law requiring dwellings hosting short-term rentals to be registered with the City. The City will begin enforcing the law, known as Local Law 18 (LL18) or the Short-Term Rental Registration Law, on Sept. 5, 2023.

Case Background

Over the last decade-plus, the popularity of short-term rentals via Airbnb.com and other similar online platforms has exploded, with exponential growth in the number of New York City listings during the 2010s. That rapid growth, however, generated legislative pushback – including, most recently, LL18.

In 2016, the state of New York enacted a ban on advertising short-term rentals that violated the Multiple Dwelling Law (MDL); given that almost all short-term listings fall under that category, the law amounted to a de facto ban on such advertisements. Airbnb sued to block that law, and the lawsuit was eventually discontinued in exchange for a promise not to enforce the law. Thereafter, New York City enacted a law imposing monthly reporting requirements on Airbnb for its listings within the City. Airbnb sued again in 2020, and that lawsuit settled as well, with the City agreeing to limit the types of rentals subject to reporting requirements and making the reports due quarterly rather than monthly.

All the while, however, short-term rentals continued to proliferate in New York. These transactions were no doubt lucrative for the property owners, tenants and others who rented out their dwellings on a short-term basis – and also served as a financial boon to the short-term rental booking services. The economic benefits of short-term apartment rentals, however, could not mask the fact that almost all of these rentals violate the MDL in that, inter alia, they were for fewer than 30 days and the permanent occupant did not remain in residence during the guest's stay. Other negative effects of short-term rentals abounded, including, inter alia:

1. Insofar as residential apartments are not typically constructed with safeguards required in hotels that are geared toward transient guests, the short-term rental of such apartments violates the New York City Fire Code.
2. The reduction of the residential housing supply, which resulted in upward pressure on rents and reduced affordability for tenants.
3. Decreased quality of life, as steady streams of transient occupants changed the character of buildings and even neighborhoods and potentially increase safety concerns.
4. Short-term apartment rentals decrease demand for traditional hotel accommodations and, thus, negatively affect employment in the hospitality industry and deprive New York of occupancy tax revenue.

Accordingly, New York City went back to the drawing board and – determined to avoid a repeat of prior unsuccessful legislative attempts to curb short-term rentals – enacted LL18 on Jan. 9, 2022. The law requires short-term rental hosts to register with the Mayor's Office of Special Enforcement (OSE) and prohibits short-term booking services from processing transactions for unregistered short-term rentals. LL18 also requires OSE to maintain a prohibited buildings list. This list comprises buildings where short-term rentals are prohibited, either by law (such as, for example, New York City Housing Authority (NYCHA) housing or rent-regulated buildings) or by the building's leases and occupancy agreements. Indeed, LL18 entitles owners to notify OSE that short-term rentals are prohibited in their building. In early 2023, OSE, which is charged with enforcing LL18, published final rules (the Rules) implementing the statute. Among other things, the Rules impose financial penalties on booking services listing units that are ineligible for short-term rental under LL18.

After the Rules went into effect, Airbnb sued the City and OSE in New York state court seeking, inter alia, to enjoin enforcement of and to annul the Rules. Airbnb argued that the Rules should be annulled and set aside because they 1) allegedly violate the 2016 and 2020 agreements settling Airbnb's prior litigation, 2) are allegedly "arbitrary and capricious" in violation of state law, 3) were not properly promulgated under state law and 4) are allegedly preempted by federal law.

Court Ruling

Judge Arlene Bluth of the New York County Supreme Court rejected each of these arguments and granted the respondents' cross-motion to dismiss Airbnb's petition.

The court easily dispensed with Airbnb's argument that the Rules should be annulled as "arbitrary and capricious." Airbnb's basis for this argument was that the Rules were allegedly "burdensome, inefficient, costly and fail to account for reasonable alternatives" (Order at 6). The court, however, noted that its task was to "assess whether these rules have a rational basis, not whether it addresses a problem in the most effective way" (id. at 7) and, applying such test, that the Rules "are entirely rational" (id.).

The evidence and testimony submitted by the City and OSE established that "there were 43,000 illegal short-term listings from Airbnb alone in 2018 … that OSE received over 11,934 complaints (from 2017-21) regarding these rentals and that it issued about 15,665 violations arising out of inspections related to short-term rentals" (id.).

The court then held that LL18 and the Rules were proper responses:

Clearly, respondents have identified a major problem – the continued prevalence of illegal short-term rentals – and these rules attempt to address that issue by requiring that each listing have a registration number. That is an inherently rational strategy. Requiring that a listing have a registration number and that Airbnb only accept fees from listings with a valid registration number makes perfect sense. It is a method designed to streamline the process of ensuring that only eligible spaces appear on Airbnb or other listing sites.

(id. at 7-8)

Further, the court noted that the Rules, insofar as they provide for a prohibited buildings list, "provide a logical way to help prevent a renter whose lease bars short-term rentals from doing it anyway," and that a booking service's obligation to verify a unit's eligibility before it can accept any fees "is not an overly onerous obligation" (Order at 8). The court, in finding that the Rules rationally further the purpose of LL18 and are not arbitrary and capricious, concluded: "The registration system proposed under Local Law 18 and the subject rules makes it easier to identify many illegal short-term rentals before they are listed on Airbnb and creates a financial incentive for Airbnb and hosts to make sure they follow the law" (id.) (emphasis in original). The court also deemed irrelevant the fact that Airbnb would need to devote more resources to ensuring compliance with the Rules, noting that Airbnb realized $85 million in revenue from New York City alone in 2022 and that much of this revenue derived from illegal short-term rentals (id.).

The rest of Airbnb's arguments fared no better. The court held, inter alia:

1. the Rules do not violate the 2016 and 2020 settlement agreements, as those agreements concerned different laws and are unrelated to the Rules (Order at 9-10)
2. the Rules were properly promulgated in that they are based on a valid legislative delegation, are within the City's police powers to enact and were enacted in conformity with applicable administrative rules (id. at 10-12)
3. the federal Communications Decency Act (CDA) does not preempt the Rules, as liability under the Rules (unlike under the CDA) is not based on Airbnb's role as a "publisher" (id. at 12)

Looking Forward

As a result of Judge Bluth's ruling, Airbnb and other short-term rental booking services cannot escape the reach of LL18 and the Rules, the enforcement of which will begin in a few weeks. Consequently, the number of short-term rentals in New York via these booking services will likely significantly decrease – and, it is safe to assume, the demand for traditional hotel accommodations in New York City will likely increase by a similar amount. While Airbnb may yet appeal Justice Bluth's ruling, the industry can expect LL18 and the Rules to be used as models for other local governments around the country (and perhaps the world) seeking to curb short-term apartment rentals within their borders.