SF may be changing its tune to Airbnb

As the sharing economy grows at a breakneck pace, the existing infrastructure and rules are constantly trying to keep up. As part of the attempt to regulate the sharing economy (and more likely to shift the burden of enforcement and responsibility), San Francisco made amendments to its "Airbnb laws" by attempting to shift the burden of hosting registration compliance and enforcement to the rental platforms, such as Airbnb. Airbnb responded by suing its host city based on platform versus business entity statutory protection theory, privacy and First Amendment protection. Airbnb Inc. v. City and County of San Francisco, 16-03615 (N.D. Cal. 2016).

The recently amended San Francisco Administrative Code Sections 41A.5(e) 41A.5(g)(4)(C) and 41A.7(b)(1)-(3), enacted on June 24 and effective Aug. 1, 2016, require hosting platforms to confirm that listings on their websites have a valid registration number issued by the city. The ordinance provides civil and criminal penalties, including fines of up to $1,000 per day, which would be imposed on Airbnb and other short-term rental companies for every host that does not have a valid registration number.

Airbnb, through its lawsuit, seeks to block the law from going into effect, arguing it violates Section 230 of the Communications Decency Act (CDA). Section 230 provides that websites hosting information are protected from liability for user created content. For example, the CDA could shield YouTube and Twitter from liability when users upload or author violent or violative content, and eBay when sellers use the platform to trade illegal goods.

Airbnb draws an analogy for its business model to companies such as YouTube and Twitter, contending it is not a physical business, but akin to a platform that hosts user generated content, protected by the CDA. Airbnb also contends the city ordinance violates the Stored Communications Act, under which Airbnb has a duty to protect user data and cannot turn over user's registration information without legal compulsion (i.e., subpoena). The company also alleges the ordinance violates First Amendment rights to freedom of speech, because the regulations on user postings are overly broad.

The city's position is the law would not regulate user content, but rather the business activity of the hosting platform. The city contends the regulations are designed to verify requisite information for regulated business activity.

The law was passed by San Francisco legislators presumably as an effort to help alleviate the current housing crisis, though it's more likely a burden and cost-shifting effort based on the city's delay in getting through the permitting process despite having a dedicated short-term rental division, and its related inability to enforce the law. The city has regulations in place requiring short-term rental hosts to register with the city, which are intended to eliminate commercial renters from removing rental housing stock. However, registering with the city is apparently a tedious, multistep process, with a lack of dedicated, trained or available city resources (i.e., city employees). Thus, only a fraction of the thousands of hosts in San Francisco are registrants. One of Airbnb's main criticisms of the ordinance is the new law does not address or fix any of these problems.

Perhaps recognizing that the legislation may not have the desired effect and, in fact, resulted in litigation by Airbnb, San Francisco lawmakers have already considered language to attempt to accommodate the short-term rental hosting platforms. On July 12, new language addressing many of the issues Airbnb had with the legislation was introduced at the San Francisco Board of Supervisors meeting. While the revisions must still go through the legislative process, it shows the city is moving towards a collaborative solution with Airbnb.

The city's most recent amendment proposes that fines would only occur after a platform accepts a booking fee for a guest staying in an unregistered home, rather than merely fining all unregistered home posts. The amendment also would allow San Francisco's Office of Short-Term Rentals to subpoena records whenever it discovered a possible violation.

For now, the San Francisco ordinance is on hold until September 2016, when the court will hear Airbnb's request for a temporary injunction on the new law.

The end result may be a compromise between Airbnb and the city to avoid time-consuming and expensive litigation. In the meantime, the backlog of host registration applicants will grow and very likely the number of hosts sharing their space without registration will continue.

Tad A. Devlin is a partner in the San Francisco office of Kaufman Dolowich & Voluck LLP where he focuses his practice in the areas of commercial and insurance litigation, professional liability and the sharing economy.

Stacey Chiu, a summer law clerk at Kaufman Dolowich, & Voluck, is a third-year law student at UC Hastings College of the Law.