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A Significant Win for Owners in Airbnb Battle

Since the arrival of Airbnb and other such companies, owners have been attempting to use the courts to regain control of apartments which have become generators of income for tenants to the detriment of owners and other tenants.

The courts have begun to recognize the fact that these business arrangements violate apartment leases, as well as the law. However, in many instances, while the courts have held that while it is impermissible for tenants to rent out their entire apartments, the courts have taken a more tolerant view where the tenant remains while the Airbnb client is present in the apartment.

That has now changed. In Goldstein v. Lipetz, the Appellate Division, First Department, in reversing a lower court ruling by Justice Shlomo Hagler, considered whether the circumstances of this case were sufficient to outweigh the fact the tenant of record was elderly and had resided in the apartment for more than 40 years.

In ruling against the tenant, the Court recognized that the financial rewards for the tenant were significant. Over the course of 338 days spread over 18 months, the tenant rented to 93 different customers, charging $95 per night for one person and $120 per night for two people. In contrast, the tenant’s stabilized rent, which was $1,758.01 per month, amounted to $57.80 per day. According to the Court’s calculations, after accounting for Airbnb’s fees, the tenant generated over $33,000 in income. The Court also recognized that even if the tenant was allowed a 10% sublet surcharge, the tenant overcharged the 93 subtenants by approximately 56%.

The Appellate Division held that:

The law is clear that a rent-stabilized tenant who sublets her apartment at market rates to realize substantial profits not lawfully available to the landlord, and does so systematically, for a substantial length of time, places herself in jeopardy of having her lease terminated on that ground, with no right to cure….

The Court went on to state that with regard to the fact that the tenant remained in the apartment while the Airbnb clients were present:

Initially, we are unanimous in rejecting [the tenant’s] primary argument on this appeal, in which she contends that the 93 transient, short-term paying guests she hosted over a year and a half were “roommates” within the purview of the Real Property Law, §235-f and RSC 2525.7.

Almost as important as the decision itself is the fact that the Appellate Division recognized the special status that a rent-stabilized lease confers on a tenant as well as the adverse impact that third-party rentals like Airbnb have on both owners and neighboring tenants. The Court stated:

In considering this appeal, we are mindful of the fact that [the tenant’s] age and health status naturally evoke sympathy. We also acknowledge that the forfeiture of a rent-stabilized leasehold is no small loss, especially after a tenancy that has lasted for more than 40 years. On this record, however, it is simply undeniable that – as [the tenant] herself essentially admits – she exploited the governmentally-conferred privilege of her rent-stabilized tenancy to take financial profits unavailable to her landlord, well in excess of the permissible 10% premium for a furnished apartment. Moreover, [the tenant’s] exploitation of her rent-stabilized leasehold disregarded not only the rights of her landlord, but also the rights of all of her fellow permanent residents of the building, whether shareholders or lessees. The other residents did not bargain to share the building where they made their homes with a continuous stream of transient strangers (to defendant no less than to themselves) of unknown character and reputation, drawn to the building from all over the world by Internet advertising…. Seen in this light, [tenant’s] systematic commercial exploitation of her rent-stabilized leasehold fully warrants the termination of her lease.

We could not have said it any better ourselves. 

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