When is an Owner liable for its Tenant’s illegal renting or subleasing of their leased premises transiently as an Airbnb?
New York City Administrative Code §28-210.3 provides, in relevant part:
It shall be unlawful for any person or entity who owns or occupies a multiple dwelling or dwelling unit classified for permanent residence purposes to use or occupy, offer or permit the use or occupancy or to convert for use or occupancy such multiple dwelling or dwelling unit for other than permanent residence purposes.
This portion of the Administrative Code holds an Owner liable for its Tenant’s illegal renting or subleasing of their leased premises as an Airbnb. When such short-term or “transient” subleasing occurs, the Owner is subjected to fines of up to $1,000 per day plus penalties.
This article looks at the evolution of the definition of “permit” relative to the Owner’s liability for a Tenant’ illegal subleasing as an Airbnb.
To be sure, an Owner who knowingly acquiesces to a Tenant’s Airbnb sublease of its premises in violation of the Building Code, the Fire Code, the Housing Maintenance Code as well as the Multiple Dwelling Law, is subject to violations and fines. Clearly, an Owner that knows of such transient subletting but fails to take corrective measures to stop the practice can be liable for large fines. In one New York City case, Matter of 42/9 Residential LLC v. New York City Envtl. Control Bd., 165 A.D.3d 541 (1st Dept. 2018), the Court, upheld the New York City Environmental Control Board’s imposition of $52,100 in fines for the Owner’s knowing violation of Section 28-210.3 of the Administrative Code. These fines were found to be “not shockingly disproportionate to the offenses” even though the illegal transient use was taking place in less than 1% of the units within Owner’s building. As noted, the fines can be hefty.
So what, exactly, does “permit the use or occupancy” as an Airbnb mean?
It might surprise Owners to learn that even if they don’t have direct knowledge that a Tenant is engaged in short-term transient subletting of a unit, the Owner can still be fined for violating Section 28-210.3 of the Administrative Code. In Matter of JNPJ Tenth Ave., LLC v. Department of Bldgs. Of the City of N.Y., 178 A.D.3d 636 (1st Dept. 2019), the Court ruled that where an Owner either has knowledge or has the opportunity, through the exercise of reasonable diligence, to acquire knowledge that a Tenant is renting the premises for transient use, it can be charged with “permitting” such use will be subject to the imposition of fines for violation of Section 28-210.3.
Similarly, in City of New York v. Big Apple Mgmt., 2019 N.Y. Misc. LEXIS 1804 (New York Co. 2019), the Court noted that it was “inconceivable” that a substantial number of units in the Owner’s building were being used as Airbnb’s without Owner’s “knowledge or at least willful blindness”, especially after numerous inspections of the building gave rise to Fire Code violations for the illegal transient uses.
So far so good, but what does “having the opportunity through the use of exercise of reasonable diligence” entail? It could be as simple as an Owner’s failing to avail itself of resources designed to alert Owners to a Tenant’s Airbnb rental. In Matter of Pamela Equities Corp. v. Environmental Control Bd. of the City of N.Y., 59 Misc.3d 1007 (New York Co. 2017), the Court found that Owner’s “lax oversight” of its building allowed two units therein to be used as transient housing in violation of Section 28-210.3 of the New York City Administrative Code. The court held that even though this “lax oversight” was unknowing and unintentional, the potential for the imposition of substantial fines and penalties should incentivize Owners to keep closer tabs on their buildings to ensure that their units are not being improperly rented out as Airbnb’s. Similarly, the Court in Thera Realty, LLC v. Environmental Control Bd. of The City of N.Y., 2019 N.Y. Misc. LEXIS 5311 (New York Co. 2019) found that an Owner’s lack of knowledge that Tenants were using their units as Airbnb’s was not, by itself, a defense to the fines imposed for violations of Section 28-210.3 of the New York City Administrative Code.
If this all sounds like Owners are strictly liable for their Tenant’s subleasing as an Airbnb, that would essentially be correct.
In 156 W. 15th St. Chelsea LLC v. City of N.Y., 2020 NYLJ LEXIS 78 (New York Co. 2020), Owner argued that the New York City Courts unlawfully hold Owners strictly liability for their Tenants’ illegal sublease of units as Airbnb’s. In reply, the City argued that Owners have a non-delegable duty to maintain their buildings in adherence with local codes, statutes and rules, including Section 28-210.3 of the New York City Administrative Code. The Court upheld the ECB determination that “premises owner’s purported ignorance of its tenant’s short-term rental activities is not a defense”.
In order to prevent the imposition of fines and penalties for your Tenant’s illegal Airbnb sublease, Owners can and should regularly monitor Airbnb.com and Vrbo.com websites to determine if their units are being illegally rented out. This may be time consuming for Owners with multiple buildings and hundreds of individual units. For Owners like this, subletalert.com is a tool to help Owners monitor Airbnb listings. There are also services such as stopbnb.com which also help Owners detect Tenant’s short-term leasing of units. The lesson to be learned is that ignorance is not bliss for Owners when it comes to Tenants’ engaging in Airbnb-ing of their units.