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The owner of the swank Palazzo apartment community in Los Angeles knew it had a problem when long-time residents complained about tourists overrunning their pools and gyms and committing late-night party fouls.
Sublet rentals that anger neighbors are nothing new, but Apartment Investment & Management Co. came up with a novel response: Blame Airbnb Inc.
Now, Aimco is asking a court to stop Airbnb from enabling tenants to illicitly sublet their apartments — not just at the Palazzo, where a penthouse rents for $17,700 a month, but at all apartment complexes across the U.S. where the landlord forbids it.
The site has faced plenty of resistance from municipalities around the world in its nine years as a business. But companies affected, such as hotels and travel agents, have tended to stick to complaining about the situation, not suing — making this lawsuit by one of the largest residential landlords in the world noteworthy.
Airbnb’s inventory of short-term rentals could shrink considerably if a judge rules that the company violates the law by helping renters break their lease agreements, said Eric Goldman, a professor of internet law at Santa Clara University. It’s a “close” call whether Airbnb can fend off Aimco’s suit by invoking a federal law that gives internet companies immunity for content others post on their sites, Goldman said.
Denver-based Aimco argues that Airbnb does a lot more than just provide a platform for property listings, saying it should be held to account as a broker of short-term rental agreements and a processor of payments.
Airbnb, which has 4 million listings worldwide, says it doesn’t specifically track the number of sublets advertised on its site. Its terms of service require hosts to follow local laws and regulations and to pledge that their bookings “will not breach any agreements with third parties.”
Airbnb has argued that most short-term rental activity is innocent, with people renting their primary homes to make ends meet.
“We educate our hosts and require them to confirm that they follow the rules,” Nick Papas, a spokesman, said in an email. “Forward-thinking landlords are embracing home sharing, but it’s clear that Aimco is continuing its decades-long war on the middle class and making claims that belie the truth and won’t hold up.”
To be sure, Aimco’s frustration with Airbnb isn’t a universal sentiment among big landlords.
“Opinions within the apartment industry run the full gamut from a total embracing of home sharing to complete opposition,” said Jim Lapides, a spokesman for the National Multifamily Housing Council. “It’s a lively debate inside the industry.”
A survey last month by the trade organization showed that 49 percent of renters under the age of 25 are interested in the opportunity to generate extra income through home-sharing, compared with 15 percent of renters older than 65, underscoring the risk landlords run of alienating millennials by going hard against Airbnb.
Aimco claims that its bad debt write-offs have exploded in the past two years because tenants who were caught illegally subleasing their apartments stopped paying rent and were either evicted or moved out voluntarily. There have been hundreds of prohibited short-term rentals at four of its Los Angeles properties and hundreds more at its apartment complexes in popular tourist destinations throughout the U.S., according to an Aimco court filing.
The coming and goings of short-term tourists has created a host of problems at the Los Angeles complexes, with lost travelers banging on the wrong doors in the middle of the night, late-night parties, and drunken and smoking tourists hanging out at the pool, according to Aimco.
The lawsuit depicts the managers of three complexes with a combined 1,382 apartments in the sprawling Park La Brea community — surrounded by museums, trendy restaurants and luxury shops — playing a cat-and-mouse game with Airbnb hosts and their guests to intercept and remove unauthorized visitors. This has resulted in some angry confrontations and visitors being surprised to find their Airbnb rentals aren’t permitted, according to Aimco.
The disruptions have also led regular tenants to pack their bags.
“We will move out because it’s inundated with Airbnb and its no longer a private residence but a hotel or a Motel 8 since Airbnb do not have quality guests,” one former Palazzo resident said in an online review the company included in its court filings.
With the increased popularity of Airbnb, some people have leased multiple apartments to make a living from short-term rentals, according to Aimco. Because Airbnb listings are anonymous and hosts have become savvy to avoid detection of illegal sublets, it’s difficult if not impossible to link an Airbnb listing to a specific unit, the company said.
Airbnb hasn’t been unresponsive to complaints by landlords. The company last year started a Friendly Buildings Program that keeps owners abreast of the home-sharing activities on their property. The hitch, according to Aimco, is that the information is only available to landlords who allow subletting.
Airbnb also began offering large building management companies a share of hosts’ revenue. In a further show of solidarity, it has teamed up with a Miami-based developer to design a 324-unit apartment building that will carry the Airbnb name. Tenants will be encouraged to sublet their spaces online, and guests will have access to amenities commonly found in hotels.
Since the startup was founded in 2008, landlords have argued it violates zoning laws and operates as an illegal hotel. Critics have also said abundant short-term rentals drive up housing costs and disrupt neighborhoods.
In one high-profile case that may be headed for a jury trial, the daughter and son-in-law of Paul Manafort — the former campaign chairman for Donald Trump whose indictment was announced last week — are accused by a downtown Manhattan landlord of illegally listing multiple units on Airbnb and other short-term property rental websites.
Likewise, authorities in various cities have gone after landlords who illegally turn their apartment buildings into hotels. In Los Angeles, the city attorney announced in September he was bringing charges against a home owner and a property manager for allowing mansions in the Hollywood Hills to be rented on Airbnb to host rowdy parties.
Aimco first sued Airbnb in February both in Los Angeles and Miami. In June, the company revised its complaint in Los Angeles to sue on behalf of all owners of apartment complexes whose units were illegally subletted through Airbnb, and last month it asked for a court order to prohibit Airbnb from doing business with its tenants until the case is decided.
In the Miami case, a judge in September expressed some surprise with Aimco’s argument that it doesn’t allow subletting at its apartment complexes because it doesn’t want to disrupt the quiet peace and enjoyment of its tenants.
“In Miami Beach?” Circuit Court Judge William Thomas asked Aimco’s lawyers. “You want to provide a quiet, peaceful residential community in Miami Beach?”
In the Los Angeles case, Airbnb contends that Aimco’s blanket ban on subleasing isn’t enforceable under California law. It also argues that as an online platform it can’t be held legally responsible for the conduct of Aimco’s tenants and their guests.
Many website operators, including EBay Inc., Alphabet Inc.’s Google and Yelp Inc., have successfully argued that the 1996 Communications Decency Act shields them from liability for the content users post on their sites.
Airbnb last year relied on the internet immunity law when it challenged a San Francisco measure aimed at punishing the company when hosts book units that aren’t registered with the city. A federal judge didn’t buy the argument, and the company ultimately reached a settlement requiring it to cooperate with San Francisco to enforce host registration rules.
U.S. District Judge Dolly Gee said last week she would rule on Airbnb’s request to throw out the lawsuit without a hearing. Oral arguments had been set for last week in Los Angeles federal court.
The case is LA Park La Brea A LLC v. Airbnb Inc., 17-cv-04885, U.S. District Court, Central District of California (Los Angeles).
–With assistance from Olivia Zaleski and Oshrat Carmel
©2017 Bloomberg L.P.