The relationship between Airbnb and New York state and city officials has, historically, not always been on the best of terms.

And a new law awaiting New York Governor Andrew Cuomo’s signature threatens to strain that relationship even further, and it could have lasting effects on how other cities choose to regulate short-term rentals.

On June 17, the New York state legislature passed a bill that would heavily fine hosts on Airbnb and other short-term rental sites like HomeAway, FlipKey, and VRBO, who post listings that violate the state’s laws on short-term rentals. The new law has a penalty of up to $1,000 for the first violation, $5,000 for the second violation, and $7,500 for the third and subsequent violations.

New York’s short-term rental laws, which were last updated in 2010, basically prohibit most apartments (buildings with three or more units) in New York City from being rented out for less than 30 days. This means that the majority of entire home/apartment listings that you find on Airbnb and other sites for New York City would be considered illegal, especially if you can book them for a period of less than 30 days.

Airbnb and its peers have not actively helped city or state officials limit illegal listings on their sites and, according to data supplied by Airbnb, entire home listings outnumber listings for private rooms or shared spaces on their platform for New York City. On June 1, 2016, Airbnb had 22,253 entire home listings in New York City, and 19,120 listings for a private room or shared space.

Shared rentals, or those where the host is present throughout the stay, are considered legal in New York, however. And certain dwellings, like one-family and two-family homes, can be rented out legally, whether or not a host is present.

Essentially, this new advertising law in New York enforces existing state law, and it holds users of Airbnb, HomeAway, FlipKey, and the like, directly accountable for violating that law.

First Things First: Can New York Really Do This?

Governor Cuomo has until January to make his decision about the bill, but some have wondered: Is this law as it’s written, legal? Or could opponents of the law argue that it is unconstitutional?

The Travel Technology Association (Travel Tech), an advocacy group whose members include Airbnb, HomeAway, Expedia, and other online travel intermediaries, said in a statement that the new law “possibly infringes upon free speech and threatens to undermine the legal foundation upon which Internet providers and platforms rely for protection.”

Matthew Kiessling, head of Travel Tech’s short-term rental policy department, told Skift, “For us, this law is concerning because it’s issuing massive punitive penalties for anybody who’s caught listing, not even renting. That’s one of the things that’s sort of key. If you’re caught advertising, it’s a really steep fine.”

Skift spoke with Eric Goldman, a professor at Santa Clara University School of Law and an expert on legal issues relating to websites. Goldman said that as long as the law makes a clear distinction between the advertisers (hosts) and the publishers (Airbnb, HomeAway, etc.) it should be enforceable. However, he said, “If the law is interpreted to apply to publishers, in addition to the advertiser, it runs into several legal doctrines which limit is scope. I couldn’t see any language that holds the publishers liable.”

Two Approaches

The New York law is different from the law currently being considered in San Francisco. On June 7, San Francisco’s Board of Supervisors unanimously approved a law that fines Airbnb and other short-term rental sites $1,000 a day for every unregistered host on their platforms. In San Francisco, a short-term rental is only legal if the host registers with the city’s Office of Short-Term Rentals. The creation of this office was part of a law that Airbnb helped draft in order to legalize Airbnb and other short-term rental platforms in October 2014.

The New York law, by contrast, puts the onus on Airbnb’s hosts, and not on Airbnb directly. And it’s a strategy that may have more teeth than the one being deployed in San Francisco.

Why? Airbnb is currently suing the city of San Francisco over the passage of that new law, which require Airbnb to verify that its hosts have the appropriate licenses to provide short-term rentals. Airbnb claims this violates a section of the Communications Decency Act (CDA) as well as the First Amendment. The CDA is a federal law that basically says websites can’t be held responsible for the actions of the people who use those sites.

Even though Airbnb has some rules for those who use its platform, it can direct any legal liability directly onto its users. So it’s likely Airbnb could win its case against the city of San Francisco. Last week, city supervisors in San Francisco introduced new language to the law to address the legal challenges put forth by Airbnb.

However, it’s unlikely that Airbnb could sue the state of New York on the same grounds because the New York law goes after the users, not necessarily the platforms or mediums through which the hosts are advertising.

“It makes more sense to direct your energies at the actual parties, not the third parties or intermediaries,” Goldman said. “This is Internet law 101. Going after the intermediary is almost never the right solution.”

When asked if Travel Tech’s members had a plan to address the New York law, should it be signed by Cuomo, Kiessling said, “I’m not sure we know that the next step would be. It’s probably a company-specific question. We’re looking at all the angles to determine what the next step would be on behalf of our members, but at the time being we haven’t necessarily arrived at an answer for that question.”

Goldman said that if a group of Airbnb hosts in New York decided to sue the state over the law, it would be rather challenging for them to win their case. “If a group of advertisers were to challenge the law, Section 230 [CDA] goes away. They are being held responsible for their own ads. They have a difficult argument to make because their argument would be that even if their transactions are illegal, they should still have the right to advertise them. That’s going to be a hard argument under the First Amendment.”

He does, however, also wonder if the New York law really addresses the problem it was intended to solve. “If someone is selling illegal items and there’s this law telling them they can’t advertise something that’s illegal, it isn’t likely to change their behavior,” Goldman said.

Another serious issue raised by this law is enforcement. How well will the new advertising law be enforced by New York City’s Mayor’s Office of Special Enforcement and other state agencies for those cities with less than 1 million residents? Where would those agencies would get their funding, for example? In 2015, the Mayor’s Office of Special Enforcement received $10 million to stamp out illegal hotels in the city over the next three years, but will that be enough to police the thousands of illegal listings found on Airbnb and its peers?

Airbnb’s Potential Losses in New York City and Beyond, Examined

If Governor Cuomo does approve this advertising law, there’s a chance it could have a chilling effect on the number of listings Airbnb has for New York City, its biggest market in the U.S. Hosts renting out entire apartments for less than 30 days may choose not to list their apartments any longer, for fear of paying those hefty fees.

Or, they might, as Goldman theorizes, simply continue to advertise their illegal listings.

Already, however, Airbnb is making moves to head off Cuomo’s approval of the law in question. On July 7, the company announced it has removed “2,233 listings that appeared to be hosts with multiple listings that conflict with our one host, one home policy” in New York City. However, it’s unclear if those listings were recently removed or if they had been removed in months prior to Airbnb’s July announcement. Airbnb also launched a million-dollar TV, radio, and movie theater ad campaign to oppose the bill, saying the law would hurt middle-class New Yorkers.

But, according to Airbnb’s own data, approximately 54 percent, or more than half of its supply in New York City is for entire homes or apartments and thereby, most likely, considered illegal if rented for less than 30 days. If the law passes, the hosts for those listings could be subject to thousands of dollars in fines — nearly $22.3 million worth for the first violation, collectively. The removal of those 2,233 listings, by contrast, amounts to only 10 percent of Airbnb’s arguably illegal listings for the city.

“How much of their business is really more than 30 days in New York?” Bradley Tusk, founder and CEO of Tusk Ventures and Tusk Strategies. “I think [the law] decimates their New York business.”

Tusk is the ex-Bloomberg aide who helped Uber navigate New York City’s regulatory hurdles and the Taxi and Limousine Commission. He specializes in helping disruptive companies like Uber, FanDuel, and Tesla handle political challenges.

“I think Airbnb has to look at, first of all, the strength of the opposition, and take it seriously,” he said. “Not underestimate it, for one.”

While it’s widely known that one of Airbnb’s most cited foes is the American Hotel & Lodging Association (AH&LA), the organization that supports the hotel industry, opposition is also emerging from affordable housing advocates, as well as unions that support hotel workers. Three U.S. senators, including Senator Elizabeth Warren of Massachusetts, also recently asked the Federal Trade Commission to investigate the impact of Airbnb and its peers on housing markets.

Tusk said, “Affordable housing advocates are a lot less offensive to people than casinos that we fight for FanDuel [another one of Tusk’s clients] or the taxi medallions that we fight for Uber. Airbnb’s opposition is much more sympathetic, so they’re much harder to beat.”

On June 27, two affordable housing advocates, Housing Conservation Coordinators and MFY Legal Services, released the findings of a study they commissioned, which showed the degree to which Airbnb is contributing to New York City’s housing crisis.

This report said more than 55 percent (28,765 listings out of 51,397) of Airbnb NYC listings in 2015 violate the state’s short-term housing law (for entire apartment/home listings) and were rented for more than a third of a year. The data was very similar to what Airbnb released on July 7 as a snapshot of its activity in New York City on June 1, 2016, with 22,253 entire home listings, or nearly 54 percent of all listings.

According to the report, for each of the top 20 neighborhoods for Airbnb listings in Manhattan and Brooklyn, average rent increases have nearly doubled the citywide average from 2011 to 2015. In 2015, the report estimates the city also lost more than 8,000 housing units to Airbnb, reducing access to affordable housing in the city by 10 percent.

“I think [that report] further shows that they [housing advocates] have gotten their act together,” Tusk said. “They’re well organized, and it’s exceptionally likely that the governor will sign the bill.”

What Can Airbnb Do?

The legislative battle in New York is just one of many challenges facing Airbnb today, among many. Although Airbnb CEO Brian Chesky recently said that the discrimination problem facing the platform far outweighs the company’s regulatory battles, what happens in New York will certainly have an impact on his business moving forward, especially since New York City is its biggest market in the U.S.

At this point, Airbnb is left, primarily, with two main options in New York if Cuomo signs the bill. It can continue operating as it has been for the past eight years, but it risks losing more than half of its listings in New York City and further angering affordable housing advocates.

Or it can start working with government officials to remove or prevent illegal listings from appearing on its platform. By doing this, Airbnb will most likely win the good will of lawmakers and housing advocates, but it will also be hurting its profitability and that recent $30 billion valuation.

Kiessling said there’s “a possibility for individuals to challenge that law as well,” implying that short-term rental hosts in New York may choose to sue the state if the new advertising law goes into effect. But as Goldman pointed out, they would face a tough legal battle.

Airbnb can also try to lobby the state for new legislation that amends the current short-term rental laws to allow entire apartment listings for less than 30 days, but its relationship with New York lawmakers, at this point, is highly acrimonious.

Even if Cuomo doesn’t sign the bill, Airbnb still faces a long battle in New York City to gain legal acceptance, as it has for years. New York City, unlike San Francisco and other cities, has declined Airbnb’s proposals to collect and remit lodging taxes, understanding that acceptance of those taxes would more or less legalize short-term rentals in the city, whether or not they abide by the current short-term rental laws that stand in the books.

Kiessling noted that the new advertising law demonstrates “an unwillingness to recognize that demand is there for this accommodations option” on the part of New York lawmakers.

He also said that even if cities try to ban or restrict the sharing economy, people will find a way to continue it. “This peer-to-peer economy and the people in it are going to continue to find ways to fulfill that demand,” he said. “What happened in Austin with Uber and Lyft shows how futile it is to stop something like this that’s a victimless crime. People formed a Facebook group that enabled ridesharing to fulfill that demand. People are demanding accommodations that are being made available through this technology.”

How did Airbnb get to this point with New York lawmakers? Tusk said that, for one, “they just handled the politics wrong.” He explained, “In New York, they had an opportunity to put this issue to bed a couple of years ago. They chose not to do it. That gave the opposition time to mobilize and to flourish. They’re not politically in a position now, nor will they be any time in the near future, to defeat the combination of the hotel trades union and the affordable housing coalition.”

Secondly, their foes, especially housing advocates, are generally well liked. Thirdly, their users are much harder to mobilize for a number of reasons, Tusk noted.

“If I’m a New York senator, and I get an email from someone in Stockholm who had a lovely stay in an Airbnb in Brooklyn, why do I care? I’m not going to act on that,” he said. “The guests aren’t voters in the jurisdiction they stayed in. If you’re a host in a place like New York, you’re never really sure if what you’re doing is legal or not, so you’re not willing to stick your hand up.”

“So, if you have a harder opponent, you don’t have the tool of mobilization, and you haven’t done a good job in terms of politics, it’s not surprising you end up in this spot.”

Tusk, for one, doesn’t think the New York law, if signed by the governor, will be catastrophic for Airbnb’s business as a whole. But it will affect its ability to grow, even as it celebrates having 100 million guests this month.

“I don’t think it changes their ability to operate in most places in the world,” Tusk said. “It may just mean that instead of being a $30 billion company, they’re a $20 billion company. It’s just a question of pricing.”

Tusk disclosed that he spoke with Airbnb’s head of public policy, Chris Lehane, eight months ago about politics in New York but he said, “[It] didn’t really go anywhere, but that’s it,” and he said he has no personal interest or stake in what happens to Airbnb.

“[Airbnb] understandably doesn’t like that I’m pointing out their missteps. I’m not doing it to give them a hard time; I’m doing it to ensure that other startups don’t make the same mistakes.”

He added, “I think [this] is a very good example of what happens when a really successful startup fails to handle the politics properly. As someone who works at the intersection of tech and politics, I want to use it as a cautionary tale for other startups to do a better job than Airbnb is doing.”

Note: Skift reached out to Airbnb for this story but the company declined to comment.

Photo Credit: In this Jan. 20, 2015, file photo, supporters of Airbnb hold a rally outside City Hall in New York. The New York state Senate has cleared a bill that would fine hosts who list illegal short-term rentals on platforms like Airbnb, HomeAway, and FlipKey. Bebeto Matthews / Associated Press