AirBn'Busted ...NYC AirBnB Penalties

[Nick Hakim]

Hello Everyone,

I've noticed that the forums for the NYC market are surprisingly sparse, but I'm assuming that's due to the level of difficulty associated with breaking into the market here. I'd like to generate discussion surrounding a few regulatory/political issues that have become prevalent amongst owner/operators in the NYC market. The first and most pressing issue is the recent growth of the Airbnb rental market and the subsequent regulation that has been imposed by the city.

New York City building code considers any stay less than thirty days (where the leaseholder is not present), "Transient Use", which, in turn, places that unit in the "hotel" category. Therefore, by nature of it's use, that unit is evading New York City's mandatory hotel tax of 5.785%

To curb this growing issue (AirBnb has an estimated 25,000 active listings in the 5 boroughs), Mayor Deblasio has created a special task force to seek out, inspect and impose monetary fine's on the individuals responsible. Here's the catch: although landlords in most cases have no idea that this is going on within their buildings AND have no equitable association with these de facto hotels, the task force is fining the landlords, NOT the tenants who are responsible. Below is a recent scenario that we were faced with:

Ana rented a free market studio apartment from our company in August 2015. Unbeknown to us, Ana began renting her apartment out on Airbnb. The Mayor's special task force found her listing and went to the building with the DOB inspector, the FDNY Inspector, and two uniformed policemen. They then proceeded to knock on every door in the building looking for suitcases or signs of "transient use."  Of course, they found renters in Ana's unit and wrote US, the landlord, a $2,400 violation for transient use. THEN, since the building was now considered a "hotel", the DOB inspector wrote a $2,000 violation for having an invalid C/O, the FDNY inspector wrote us a $3,000 violation for having the improper means of egress, and a $2,000 violation for an incorrect sprinkler system.

To make matters worse, if we are found to have another unit in the building with illegal occupancy, the fine is then raised to $1,000.00 per day until both tenants are evicted. Here is the best part: New York City evictions, due to anti-landlord policymakers and judges, can take as long as 60-90 days to process, meaning that fines could be anywhere between $70 & $100K...

To prevent that from happening we have implemented a zero tolerance policy across our entire portfolio and have been forced to take a MUCH more hands-on approach to managing our buildings, including:

1. Monitoring Airbnb, VRBO, Homeaway and other sites SEVERAL times a day.
2. Periodically knocking on doors of tenants we suspect are illegally subletting.
3. Removing locks/installing keyless entry
4. Ammending leases to allow for impromptu inspections/termination clauses.

Has anyone else out there in NYC or SF encountered this issue? If so, how are you handling it? Something needs to be done, and I'm planning on leading this battle. Would love to hear any feedback/suggestions.

Best,

Nick

[John Sullivan]

NYC laws with regard to Airbnb are ridiculous. People work 80+ hours a week in highly stressful jobs/industries just to make a living in that city and 75% of their after tax income goes out the window to the ridiculous market rents for their TINY spaces. God forbid the city can allow people to earn a little extra money by renting their own properties while on vacation, etc. I understand as a landlord that a tenant renting out an apartment they do not own is wrong and in violation of the lease, but having an actual law that does not allow owners to rent out their own properties for less than 30 days is outrageous. I own several condos in Boston, which is also very expensive. I have operated one of my 1-bedroom units in the city as an Airbnb for the past four years and it has literally been a gold mine. It generates double the annual revenue than it would if I just did a year to year lease. Fortunately the mayor and city of Boston is very pro-Airbnb and innovation in general.