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Short Term rental companies like Airbnb and VRBO have been around since 2007. These companies allow homeowners the opportunity to make an extra income by renting their homes or rooms for a short period of time. As opposed to renting a hotel room, guests have the chance to book a complete apartment or condo through these platforms. Over a few years, the companies were well on their way to be successful. However, with success came a few headaches. It appeared to be that homeowners began to claim guests trashed the homes, broke furniture, and left the homes absolutely destroyed. Other legal issues arose in major cities, where local governments began to set regulations that threaten the platform and its short-term rental model. This paper will analyze the legal concerns surrounding short term rentals and specific cases that apply.
The paper will also address the impact the short-term rental company has had on the hospitality industry. Initially, the paper will address the history of the short-term rental industry and how it came about. Then we will analyze specific cases that challenge the legality of it and then we will go into detail on it. The paper will also go into management suggestions and how this has impacted the lodging industry.
Historical Background
Websites like Airbnb and VRBO offer their services as a home-sharing platform that allows owners to rent their homes out to guests for a short period of time. Guests then sign a lease, pay a fee and stay at the home for the allotted time. Airbnb and VRBO and other companies act as brokers that receive a commission from the bookings and transactions that occur on their platforms. In order for owners to use the platform, they must create a listing with pictures, videos, and price list for the home. More often than so, the prices and availability on Airbnb are more affordable and convenient to travelers. This makes it a competitive option to hotels and other lodging facilities. Although the platform itself is not illegal, there are issues that arise in local government from tenants renting their apartment out in cities. One restriction of short-term rentals is in New York City. To be more specific, the city has tried to pass bills that restrict short term rentals. In New York City, the Governor passed a law that owners and tenants cannot rent out an entire apartment for less than 30 days (New York, 2020). In addition, New York Multiple Dwelling state law prohibits advertising an apartment in any building with 3 or more residential units, for rent of any period less than 30 days, doing so will violate the law and the owner can be fined up to $7,500 (New York, 2020). According to an article in the Daily News, the law is targeted to those who drive up the housing costs in New York City. They are really trying to target the owners that have multiple listings that are managed by commercial operators and not owners (Hessinger, 2015). The main battle in some urban cities is that with this “sharing economy”, these short-term rentals are illegal if less than 30 days (Barber, 2016). Some critics even say that Airbnb has removed neighbors and friendly meet-ups, especially in tourist cities and popular neighborhoods.
Now not only does this cause an issue with local governments and regulations, it also causes an issue with the lodging industry. Airbnb makes it easy for guests to find valuable accommodation in well-known locations. This often poses a threat to hotels, as the price is significantly cheaper for Airbnb. Therefore, this undercut the profits to the hotel industry. This paper will then analyze the impacts Airbnb has had on the lodging industry and some management suggestions.
Legal Issues
One of the toughest challenges the home sharing platforms has been in the city of New York City. The battle has been mainly with state laws and local regulations that strictly prohibit the advertising of short-term rentals on sites and if found advertising owners can be charged with a heavy fine. In order to challenge this a case was brought upon the city. Under Airbnb Inc, vs, City Of New York, Airbnb initiated action due to an ordinance that the city had enforced on tenants using the platform. The ordinance stated that the booking platforms used to advertise rentals or accept such offers will be required to provide a list of the transactions and fees they receive on a monthly basis. According to the ordinance, Airbnb states that this violates the First and Fourth Amendment (Airbnb vs. City of New York, 2019).
Another legal issue are the taxes that hotels or tourists are supposed to pay when staying in these cities. According to an article reporter, Airbnb wants to begin to pay occupancy taxes to be recognized as a more legitimate rental company, that is why they attend all government conferences (Mende, Molongoski, Virkler, 2016). It seems that they are trying to plead their case for following the tax guidelines in places such as New York and St. Lawrence County. A case that arose that challenged Airbnb and HomeAway to pay taxes was Gannon v. Airbnb, Inc 295 So. 3d 779. The tax collector in a Florida city filed a complaint for declaratory relief against these short-term rental companies seeking a declaratory judgment that these companies were required to pay and register as dealers to collect and remit the TDT pursuant to sections 125.0104 and 212..035 Florida statutes (2005). According to the appeal case, the court affirmed the summary judgment from the trial case. They stated that these companies that advertised these short-term vacation rental listings on their platform are not required to register as dealers and collect or remit the Tourist Development Tax (TDT) pursuant to 125.0104 and 212.0305 because the art of facilitating the room reservation process did not qualify as exercising the taxable privilege, therefore, the TDT did not apply to them. The question here that arises is whether the tax guidelines to collect and remit the TDT in the state of Florida falls on the owner or the company. According to the case, the owner is responsible for collecting and remitting this tax as the companies are not considered “dealers” in this case (Gannon v. Airbnb, Inc, 2020).
Considering Airbnb is a startup company, they still continue to face issues when issues arise that guests are injured or guests damage the property. An example of this issue when a guest was injured is with Caroll vs. American Empire Surplus lines Insurance Co. Civil action No. 16-2589 (Ed. La 1927). The issue was that the plaintiff filed suit and claimed that they sustained injuries from the staircase that collapsed during their stay. The plaintiff and their friend rented the house in Louisiana from the owners using the website of the defendant Airbnb. In April 2015, Caroll was ascending to access the property and the wooden stairs collapsed causing the plaintiff to fall about 10 feet (Eturbo News, 2015). Carrol claims tort against the defendant owners, several alleged insurers and Airbnb. The defendant Airbnb moved for summary judgement dismissing the plaintiff claims, which argues that under Louisiana law defendant Airbnb owed no duty to the plaintiff and that Airbnb had no knowledge of the defect that caused the injury to the plaintiff, the court granted the motion (Caroll vs. American Empire Surplus Lines Insurance Co, 2015). After analysis of this case, a suggestion would be that Airbnb would need to do inventory and a walkthrough of the property with the owner to ensure the property is safe for guests. In hospitality, hotels have a standard of care towards their guests therefore so should Airbnb. In order to do so, Airbnb can have staff in urban cities who do an intake of the property to ensure the standard of care towards their guests. This would be helpful to the company to avoid any lawsuits for negligence or tort of personal injury.
Analysis
After much review of the literature, it appears to be that the short-term rental platforms are very popular, however, because it is a relatively new market, there are not many regulations in place for control of it. Much of the regulations appear to be in the local state governments who oversee the laws and enforce them. This appears to leave the responsibility up to the owner to understand the rules and taxes of their city. Although Airbnb has been trying to negotiate terms with local governments such as Barcelona, New York City, San Francisco and Miami, they have not been as successful. The issue that arises is here with the period of the rental, and how this can disrupt the housing cost. As we see in many legal battles between cities and Airbnb, they fear the owner is not present in the apartment. For example, in San Francisco they limit rentals to where the host is not present for a maximum of 90 days per year (Stephen Fishman, 2019). If the owner is found renting longer, they are fined depending on how many incidents. Therefore, in order to combat these issues Airbnb has grown their legal team substantially to assist with the rising challenges of each city.
Another issue that arises with Airbnb is how the misrepresentation of the listing can occur. The platform is very user friendly therefore it can be easy for an owner to upload a listing and create fake reviews. Therefore, tourists need to be very careful when booking a place as they should only book from super hosts and places who have 5 stars. According to the Airbnb clause, if the home is not as you expected when you check-in, tourists should contact the host immediately, contact Airbnb and check the guest refund policy to see if the cancellation would be valid and any monies owed to you.
Airbnb also appears to be impacting the hotel industry as the rates are affordable and convenient. They offer a local experience whether it be a stay or activity with a local host. This appears to be adding a unique kind of hospitality service that is more personable and authentic to the location. Airbnb claims to be the most prominent lodging company with three million listings in 2017, and a presence in more than 65,000 cities and 191 countries, overtaking hoteliers’ giants such as Marriott and Hilton (Harvard Real Estate, 2019). According to the review, hotels are not able to increase their revenue as much due to the supply of short-term rentals in the market. The convenience, cost, and efficiency of renting a home is attractive to tourists giving Airbnb a competitive advantage over hotels. Therefore, hotels are working on ways to be more attractive as Airbnb. Airbnb brands themselves with an authentic perspective from a local host, experience and stay. Therefore, hotels should try to brand themselves in such a way that comes off authentic as well. From the room to the hotel space and the complete package they offer. Brand authenticity is a pillar that hotels can build on for a strong and loyal brand relationship with customers (Gomez & Mody, 2018). Hotels can use this when rebranding themselves and their portfolio to be more authentic in their guest experience and what they offer to their guests. A few effective ways of doing so would be personalizing the stay and consistent communication throughout the stay, and using technology to supplement employees instead of replacing them.
Hospitality is a very personable industry. If hotels can find ways to use technology to supplement the experience, hotels would be able to build and keep loyal relationships with customers. Not only do hotels see Airbnb as a threat, they have attempted to enter the market to stay relative. For example, Accor purchased OneFineStay, Hyatt partnered with Oasis and Marriott partnered with Tribute Portfolio Homes (Gomez & Mody, 2018). These major hospitality companies are clearly seeking ways on how to enter the home-sharing market with these partnerships. Therefore, it is evident to learn clever ways on how these platforms are effectively creating loyal relationships with their customers.
Management Suggestions
A few suggestions for management would be as follows:
- Understand the changing market dynamics – This will help to understand the needs and wants of the Hotels will need to track price strategies such as ADR/ RevPar and occupancy rates to see how the hotels in the area adjust their prices and market accordingly.
- Invest in resources hotels can offer – This means that hotels should highlight the resources they can Commodities such as 24/7 security, cleanliness and turn down service, immediate staff available at any time, food services (if applicable) and many more. Hotels can learn to take advantage of what they can offer to the guest and highlight those services. (Provide examples of Hotels that are showcasing this such as Locke Hotels).
- Promote authentic experiences – Tourists seeking Airbnb hosts are most likely seeking authentic Therefore, hotels should brand themselves with a similar approach. Airbnb hosts tend to be the point of contact for the stay, which in turn allows for a personable experience. Hotels should seek to make the hotel stay a personable experience. A way to do so would be to assign hosts to guests at check-in who can help the guests throughout their stay. This hotel staff can recommend the guest any activities and essentially be the “host” during their stay.
Conclusion
As Airbnb continues to grow and even sell stock shares on the market, it is recognized that it will be a giant force in the hospitality industry. They will create trends and continue to challenge the hotel and hospitality industry. Therefore, hoteliers need to learn how to compete with this platform as more supply for vacation rentals becomes available and for the modern traveler, this becomes a convenient accommodation option. Hotels can rethink their brand promise and try to be more authentic with their guests. They should also try to create a memorable experience outside of the guestroom. Hotels can offer a lot more than Airbnb as they have spaces to do. If they can leverage these communal spaces (restaurants, fitness centers, bars, lobbies, poolsides, etc.), to create a memorable experience all together they can attempt a higher net promoter score and increase their brand loyalty.
References
Airbnb, Inc. v. City of New York, 373 F. Supp. 3d 467, 2019 U.S. Dist. LEXIS 755, 2019 WL 91990 (United States District Court for the Southern District of New York January 3, 2019, Filed) https://advance-lexis- com.ezproxy.fiu.edu/api/document?collection=cases&id=urn:contentItem:5V3X-8CW1-JF1Y- B3RK-00000-00&context=1516831.
Barber, M.. (November 10, 2016 Thursday). Airbnb vs. the city. Curbed. https://advance-lexis- com.ezproxy.fiu.edu/api/document?collection=news&id=urn:contentItem:5M4S-01K1-JCMN- Y22F-00000-00&context=1516831.
Gannon v. Airbnb, Inc., 295 So. 3d 779, 2020 Fla. App. LEXIS 3954, 45 Fla. L. Weekly D 690 (Court of Appeal of Florida, Fourth District March 25, 2020, Decided). https://advance-lexis- com.ezproxy.fiu.edu/api/document?collection=cases&id=urn:contentItem:5YHD-T851-F873- B38R-00000-00&context=1516831.
Gomez, M., & Mody, M. (2018, October 31). Airbnb and the Hotel Industry: The Past, Present, and Future of Sales, Marketing, Branding, and Revenue Management. Retrieved December 11, 2020, from https://www.bu.edu/bhr/2018/10/31/airbnb-and-the-hotel-industry-the-past-present– and-future-of-sales-marketing-branding-and-revenue-management/
Hessinger, S. (December 22, 2015 Tuesday). New York Cracks Down on Short Term Rentals and Airbnb. Small Business Trends. https://advance-lexis- com.ezproxy.fiu.edu/api/document?collection=news&id=urn:contentItem:5HNS-NDW1-JCMN- Y4GD-00000-00&context=1516831.
Harvard Real Estate Review. (2019, January 25). A New Era of Lodging: Airbnb’s Impact on Hotels, Travelers, and Cities. Retrieved December 04, 2020, from https://medium.com/harvard-real-estate-review/a-new-era-of-lodging-airbnbs-impact-on-hotels-travelers-and-cities- de3b1c2d5ab6
Mende, S., Molongoski, B., & Virkler. S. (November 27, 2016 Sunday). Airbnb draws tourists to north country, raises tax issues. Watertown Daily Times (New York). https://advance-lexis- com.ezproxy.fiu.edu/api/document?collection=news&id=urn:contentItem:5M8C-8HW1-JC6P- C0VM-00000-00&context=1516831.
New York, C. (Ed.). (2020). Stay in the Know. Retrieved December 04, 2020, from https://www1.nyc.gov/site/specialenforcement/stay-in-the-know/information-for-hosts.pag
Sinrod, E. (October 26, 2016 Wednesday). Platforms Like Airbnb And VRBO To Thrive Or Facing Legal Reckoning?. Mondaq. https://advance-lexis- com.ezproxy.fiu.edu/api/document?collection=news&id=urn:contentItem:5M1J-7MR1-JCMN- Y3YG-00000-00&context=1516831.
Stephen Fishman, J. (2019, August 27). Overview of Airbnb Law in San Francisco. Retrieved December 11, 2020, from https://www.nolo.com/legal-encyclopedia/overview-airbnb-law-san- francisco.html
Eturbo News. (June 21, 2018 Thursday). Airbnb guest severely injured traversing stairs in home of Airbnb host: Is Airbnb liable? https://advance-lexis- com.ezproxy.fiu.edu/api/document?collection=news&id=urn:contentItem:5SM4-56T1-F12F- F1BB-00000-00&context=1516831.