The Airbnb Problem in Residential Housing

Pursuant to L. 2010 ch. 225 (“Chapter 225″), the New York State Legislature amended the Multiple Dwelling Law and various other statutes to crack down on landlords running so-called illegal hotels. The Legislature determined that certain landlords, rather than renting vacant apartments and rooms to tenants at regulated rents, recognized that it was more lucrative to use Airbnb and similar platforms to rent rooms on a nightly basis at market rates. As the Second Circuit observed in Dexter 345 Inc. v Cuomo, 663 F3d 59, 62 (2d Cir 2011):

The stated purposes of Chapter 225 were to (1) prevent building owners from circumventing the strict fire safety standards applicable to hotels; (2) prevent 'unfair competition to legitimate hotels that have made substantial investments to comply' with buildings codes; (3) protect the rights of permanent occupants who 'must endure the inconvenience of hotel occupancy in their buildings;' and (4) preserve the supply of affordable permanent housing.

Ironically, some rent-regulated tenants ' who are intended beneficiaries of Chapter 225 ' got into the Airbnb act as well. These tenants realized that there were substantial profits to be made by renting their apartments, or individual rooms within their apartments, to short-term transients at market rates, well above the regulated rents they were paying to their landlords. Although an individual tenant could not turn a building into an “illegal hotel,” the tenant could certainly turn a single apartment into a bed and breakfast.

This article details the City's efforts in one case to enjoin a business that facilitated the creation of illegal hotels, and a landlord's efforts in another case to eject a rent-controlled tenant who was using Airbnb to rent rooms within her four bedroom apartment overlooking Central Park.

Smart Apartments

In City of New York v Smart Apartments LLC, 39 Misc 3d 221 (Sup Ct New York County 2013), the City sought an injunction against a company that operated a business “advertising, booking, operating and maintaining transient accommodations for short-term stays of less than 30-days in as many as 50 or more Class A ' multiple dwellings in New York City.” The City asserted, inter alia , that defendants' conduct violated MDL ' 4.a.8(a), amended by Chapter 225, which limits occupancy of a dwelling unit in a Class A multiple dwelling to “occupancy ' by the same natural person or family for 30 consecutive days or more.”

The City also alleged a public nuisance, in that defendants' conduct depleted “the City's stock of affordable, long-term housing,” and created “security risks and quality-of-life problems” in the buildings in question. Critically, the City alleged that defendants' actions violated the New York City Fire and Building Codes, which “require transient residences to observe significantly higher fire safety standards than non-transient residences.” Those higher safety standards include “fire extinguishers, sprinklers, alarms, evacuation plans, diagrams, 'fire safety directors,' fire brigades, command centers, [and] training.”

Supreme Court (Engoron, J.) granted the injunction over little opposition from the defendants, holding:

Again, even using the strict general test, placing unsuspecting tourists in illegal, dangerous accommodations constitutes irreparable injury, especially if there is a tragic fire; and the equities lie in favor of shutting down an illegal, unsafe, deceptive business, rather than in allowing said business to continue to operate (to defendants' presumed financial advantage).

Penraat

In Brookford, LLC v Penraat, 2014 WL 7201736 (Sup Ct New York County), tenant occupied a four-bedroom duplex apartment overlooking Central Park. Landlord alleged that “[o]ver the past two years, defendant has had 135 short-term rentals, some as short as three nights, but none exceeding 21 days.”

Landlord commenced an ejectment action in Supreme Court alleging, inter alia, that tenant had violated a substantial obligation of her tenancy under the rent control statute by commercializing her apartment and by profiteering. Notably, the building is described in its Certificate of Occupancy as a Class A multiple dwelling.

Supreme Court (Edmead, J.), in an interim Dec. 19, 2014 decision continuing a previously granted TRO, held that landlord had preliminarily established that tenant's conduct constituted “an incurable violation of the Rent Control Law.”

A more interesting issue, however, arose as to Chapter 225. Landlord asserted that the statute was intended to prevent both landlords and tenants from circumventing fire and safety laws applicable to hotels. Tenant argued that the statute was intended to “establish that a permanent resident's fee-based rental of a room in his or her apartment that he or she occupies is neither illegal nor converts such building into a hotel.”

Supreme Court agreed with Landlord, holding that it could not be said that Chapter 225:

' 'created' a loophole ' for a permanent occupant to engage in such activity. One of the objectives of the amendment is to address the problematic use 'of residential property intended for permanent dwelling as illegal hotels or for other transient uses' that pose a danger to transient occupants due to the Class A dwellings' freedom from compliance with fire and safety regulations. The intent of the amendment to MDL ' 4.8 was to prevent tenants or building owners looking to rent out residential units 'from circumventing the strict fire and safety standards applicable to hotels'”

(internal citations omitted).

Supreme Court concluded:

The dangers created by such non-compliance exist irrespective of whether the lessor is the landlord or the permanent occupant. The legislation, as drafted without any reference to requirements that protect the health and safety of transient 'renting guests' which the amendment was designed, in part to address, cannot be construed to permit the permanent occupant to participate in conduct that is otherwise forbidden of landlords.

In short, courts have held that transient rentals in Class A multiple dwellings compromise fire and safety standards, and are a nuisance to those tenants who permanently live in such buildings. Landlords or tenants who engage in such activity can expect little sympathy from the courts.

Jeffrey Turkel, a member of this newsletter's Board of Editors, is a member in the Manhattan real estate law firm of Rosenberg & Estis, P.C. He represented the landlord in Penraat.

Pursuant to L. 2010 ch. 225 (“Chapter 225″), the New York State Legislature amended the Multiple Dwelling Law and various other statutes to crack down on landlords running so-called illegal hotels. The Legislature determined that certain landlords, rather than renting vacant apartments and rooms to tenants at regulated rents, recognized that it was more lucrative to use Airbnb and similar platforms to rent rooms on a nightly basis at market rates. As the Second Circuit observed in Dexter 345 Inc. v Cuomo, 663 F3d 59, 62 (2d Cir 2011):

The stated purposes of Chapter 225 were to (1) prevent building owners from circumventing the strict fire safety standards applicable to hotels; (2) prevent 'unfair competition to legitimate hotels that have made substantial investments to comply' with buildings codes; (3) protect the rights of permanent occupants who 'must endure the inconvenience of hotel occupancy in their buildings;' and (4) preserve the supply of affordable permanent housing.

Ironically, some rent-regulated tenants ' who are intended beneficiaries of Chapter 225 ' got into the Airbnb act as well. These tenants realized that there were substantial profits to be made by renting their apartments, or individual rooms within their apartments, to short-term transients at market rates, well above the regulated rents they were paying to their landlords. Although an individual tenant could not turn a building into an “illegal hotel,” the tenant could certainly turn a single apartment into a bed and breakfast.

This article details the City's efforts in one case to enjoin a business that facilitated the creation of illegal hotels, and a landlord's efforts in another case to eject a rent-controlled tenant who was using Airbnb to rent rooms within her four bedroom apartment overlooking Central Park.

Smart Apartments

In City of New York v Smart Apartments LLC, 39 Misc 3d 221 (Sup Ct New York County 2013), the City sought an injunction against a company that operated a business “advertising, booking, operating and maintaining transient accommodations for short-term stays of less than 30-days in as many as 50 or more Class A ' multiple dwellings in New York City.” The City asserted, inter alia , that defendants' conduct violated MDL ' 4.a.8(a), amended by Chapter 225, which limits occupancy of a dwelling unit in a Class A multiple dwelling to “occupancy ' by the same natural person or family for 30 consecutive days or more.”

The City also alleged a public nuisance, in that defendants' conduct depleted “the City's stock of affordable, long-term housing,” and created “security risks and quality-of-life problems” in the buildings in question. Critically, the City alleged that defendants' actions violated the New York City Fire and Building Codes, which “require transient residences to observe significantly higher fire safety standards than non-transient residences.” Those higher safety standards include “fire extinguishers, sprinklers, alarms, evacuation plans, diagrams, 'fire safety directors,' fire brigades, command centers, [and] training.”

Supreme Court (Engoron, J.) granted the injunction over little opposition from the defendants, holding:

Again, even using the strict general test, placing unsuspecting tourists in illegal, dangerous accommodations constitutes irreparable injury, especially if there is a tragic fire; and the equities lie in favor of shutting down an illegal, unsafe, deceptive business, rather than in allowing said business to continue to operate (to defendants' presumed financial advantage).

Penraat

In Brookford, LLC v Penraat, 2014 WL 7201736 (Sup Ct New York County), tenant occupied a four-bedroom duplex apartment overlooking Central Park. Landlord alleged that “[o]ver the past two years, defendant has had 135 short-term rentals, some as short as three nights, but none exceeding 21 days.”

Landlord commenced an ejectment action in Supreme Court alleging, inter alia, that tenant had violated a substantial obligation of her tenancy under the rent control statute by commercializing her apartment and by profiteering. Notably, the building is described in its Certificate of Occupancy as a Class A multiple dwelling.

Supreme Court (Edmead, J.), in an interim Dec. 19, 2014 decision continuing a previously granted TRO, held that landlord had preliminarily established that tenant's conduct constituted “an incurable violation of the Rent Control Law.”

A more interesting issue, however, arose as to Chapter 225. Landlord asserted that the statute was intended to prevent both landlords and tenants from circumventing fire and safety laws applicable to hotels. Tenant argued that the statute was intended to “establish that a permanent resident's fee-based rental of a room in his or her apartment that he or she occupies is neither illegal nor converts such building into a hotel.”

Supreme Court agreed with Landlord, holding that it could not be said that Chapter 225:

' 'created' a loophole ' for a permanent occupant to engage in such activity. One of the objectives of the amendment is to address the problematic use 'of residential property intended for permanent dwelling as illegal hotels or for other transient uses' that pose a danger to transient occupants due to the Class A dwellings' freedom from compliance with fire and safety regulations. The intent of the amendment to MDL ' 4.8 was to prevent tenants or building owners looking to rent out residential units 'from circumventing the strict fire and safety standards applicable to hotels'”

(internal citations omitted).

Supreme Court concluded:

The dangers created by such non-compliance exist irrespective of whether the lessor is the landlord or the permanent occupant. The legislation, as drafted without any reference to requirements that protect the health and safety of transient 'renting guests' which the amendment was designed, in part to address, cannot be construed to permit the permanent occupant to participate in conduct that is otherwise forbidden of landlords.

In short, courts have held that transient rentals in Class A multiple dwellings compromise fire and safety standards, and are a nuisance to those tenants who permanently live in such buildings. Landlords or tenants who engage in such activity can expect little sympathy from the courts.

Jeffrey Turkel, a member of this newsletter's Board of Editors, is a member in the Manhattan real estate law firm of Rosenberg & Estis, P.C. He represented the landlord in Penraat.