A months-long legal battle between short-term rental startup Airbnb and the City of San Francisco ended in a settlement on June 2nd, bringing the industry into more predictable terrain.
Background: The Lawsuit
On June 27, 2016, Airbnb filed a lawsuit against the City of San Francisco, contestingOrdinance 104-16. This ordinance made Airbnb criminally liable of a misdemeanor charge for allowing users to post rental units not registered with the city. Penalties could include fees up to $1,000, or potentially, per the ordinance, “imprisonment in the County Jail” for up to six months.
This was an expansion of the existing law, which applied only to the person renting out the unit. Under 104-16, both the host and Airbnb would be criminally liable.
In the lawsuit, Airbnb claimed this law violated three legal precedents: the Communications Decency Act (CDA), and the U.S. Constitution’s First and 14th Amendments. Broadly speaking, the company’s argument was that 104-16 punished the company for exercising free speech, and that the speech in question wasn’t even the company’s in the first place, but rather that of its users.
After this lawsuit was filed, the City halted enforcement of 104-16, using that time to amend the ordinance.
The Shake-Up: Ordinance 178-16 and the Beginning of the End
The replacement, Ordinance 178-16, passed by the Board of Supervisors on August 11th, 2016, didn’t change the essential nature of short-term rental regulation, but rather the target of enforcement. Instead of regulating listings, the City targeted the financial transaction when a unit is rented.
This is the source of Airbnb’s profits. The company hosts listings for free, but takes a percentage of rent in payment. Under 178-16, this financial exchange made Airbnb legally complicit in the rental of an unregistered unit.
The company filed an amended complaint in September of 2016 and sought an injunction, but Judge James Donato denied the injunction on November 8th, stating that Airbnb had failed to demonstrate “a likelihood of success on the merits” of their arguments.
The Settlement: End of the Line
On May 9th, 2017, the City Attorney put forward Resolution 208-17, endorsing a settlement; one month later, on June 2nd, the resolution was passed.
The settlement itself has a few distinct parts. First, both sides are sticking to their guns: “Airbnb continues to object to the Ordinance on the grounds that it is preempted by the CDA and unconstitutional,” and “the City continues to assert that the Ordinance is not preempted by the CDA and is constitutional,” according to the text of the settlement.
However, Airbnb “recognizes the importance of being a constructive partner with the city,” and has opted to find a policy settlement than take this to the courts.
So they’re going to be changing a few things. When you’re listing a property on Airbnb’s website, you’ll now be prompted to enter your Office of Short Term Rentals (OSTR) registration number before being allowed to continue. Your only other option is to put in your pending request number. Without one of those numbers, you can’t list a unit.
According to the settlement, Airbnb is also required to send OSTR “all San Francisco listings” every month, including the ID number of each listing, the OSTR registration number or OSTR application number, the expiration date for the OSTR registration, and the zip code of the listing.
Furthermore, Airbnb is required to “deactivate” listings for unregistered units, and to cancel pending listings for units “ineligible for registration.”
Airbnb’s website will also now include a set of fields tied into the OSTR’s registration page, allowing users to register for a “business registration certificate” online through Airbnb’s page. The company is then obligated to make this system available to other companies. Since the City did not have the adequate technology necessary to comply with the order itself, the judge sent both parties to mediation.
For the “costs to build” the City this system, Airbnb is also required to pay the city $40,000, and $5,000 annually for maintenance.
Peace through Regulation
The settlement likely signals the end of the long-running battle between Airbnb and the City. The City gained a significant number of benefits from the agreement: Airbnb is now part of the city’s enforcement team and is developing the City’s registration software. The City also has attained full regulation of the short-term rental market, with OSTR numbers on all listings.
Airbnb, on the other hand, will continue to operate in the city, and their hosts will be allowed to continue listing their short-term rentals until the new registration system is developed. Most importantly, Airbnb will be allowed to develop a new registration system that will allow their hosts to register with their City directly through the Airbnb platform. The company itself describes the settlement as providing “certainty and clarity for thousands of San Francisco families.”
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Ordinance 104-16, passed June 24th, 2016. Required Airbnb to prevent the listing of unregistered units.
Ordinance 178-16, passed August 11th, 2016. Required Airbnb not to participate in the rental of unregistered units (collect a fee from it).
Airbnb, inc. v. City of S.F., as outlined by United States District Judge James Donato on November 8, 2016.
Resolution 208-17, Resolution Recommending Settlement of the Lawsuit between Airbnb and the City of SF, passed June 2nd, 2017.
The Settlement of Airbnb, inc. v. City of S.F., first proposed May 1st, 2017. Accepted by both parties on June 2nd, 2017.