Hooshmand_The-risks-of-being-a-host-in-the-sharing-economy_Plaintiff-magazine

www.plaintiffmagazine.com 

APRIL 2015 

The risks of being a host in 

the sharing-economy 

A look at short-term rentals and the liability 

and public-policy problems they present 

BY MARK HOOSHMAND 

The “sharing economy” is in full 

swing in the San Francisco Bay Area; indeed, 

in many countries around the 

world. Due to advances in technology, 

Web-based and mobile apps give individuals 

the ability to turn dormant investments 

like cars and houses into 

money-generating assets. These 

platforms and apps allow companies 

to monetize these assets and for 

consumers to operate businesses and 

generate income by sharing everything 

from rides and cars, to rooms 

and houses. While there are benefits to 

creating efficiencies in the marketplace, 

there are also significant risks 

and harms. These risks are too often 

ignored by the major players in the 

sharing-industry, many of whom appear 

willing to flaunt the law while 

embracing the mantra “it is better to 

beg forgiveness than to ask permission.” 

A prime example of the implementation 

of technology in the sharing 

economy is in the home-sharing sector. 

Companies such as AirBnB, Homeaway, 

VRBO and Flipkey have grown quickly 

by creating platforms to facilitate homesharing 

while generating revenues from 

their customers and the communities in 

which they operate. In some instances, 

the companies appear to acknowledge 

that the short-term rentals they facilitate 

are not allowed in certain jurisdictions. 

Until recently some platforms even 

Copyright © 2015 by the author. 

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APRIL 2015 

refused to pay taxes that had been assessed 

against them. While cities like 

San Francisco have made efforts to regulate 

these businesses in recent months, 

the proposed regulations place the bulk 

of the responsibility for compliance and 

the penalties for violations on the individual 

host. 

The risks of room-sharing 

The risks created by transforming a 

home into a hotel can be significant. 

Some of the risks and effects include inadequate 

insurance coverage, nuisance, 

premises liability, and a host of community 

impacts. In other words, homesharing 

can have a detrimental impact 

on the individual unit or building that is 

being “shared” as well as on other tenants, 

neighbors and on the neighborhood, 

city, and county in which the 

“home-sharing” takes place. 

• Insurance 

A major problem caused by renting 

one’s home or apartment for short term 

rentals is that most insurance policies 

are invalidated by the use of residential 

property for a commercial purpose. The 

same is likely true of using one’s car for 

Uber or Lyft. 1 This invalidation of insurance 

is not surprising since the operation 

of a commercial enterprise is 

contrary to the purpose of a homeowner’s 

policy or renter’s policy. These 

issues have been widely covered by news 

outlets like the New York Times, and the 

stories document tales of individual 

hosts that were either denied coverage 

or dropped by their insurance company 

altogether. 2 

While some of the platforms attempt 

to provide solutions in the form 

of secondary coverage, a review of their 

guidelines appears to make it very difficult 

to obtain any recovery in the event 

of serious damages. Typically coverage 

is only triggered for damages above and 

beyond the host’s policy limits, or when 

the primary insurance provider denies 

the host’s claim. It is still unclear 

whether the platforms’ insurance policies 

will provide any coverage if and 

when a serious catastrophe happens 

such as fire, flood or other damage. 

• Quiet enjoyment of residents and 

neighbors 

Civil Code section 1955 provides: 

[O]ne who leases personal property 

must deliver it to the lessee, secure 

his or her quiet enjoyment 

thereof against all lawful claimants, 

put it into a condition fit for the purpose 

for which he or she leases it. . . . 

Civil Code section 1927 provides: 

An agreement to let upon hire 

binds the letter to secure to the hirer 

the quiet possession of the thing hired 

during the term of the hiring, against 

all persons lawfully claiming the same. 

Not only are landlords obligated to 

provide quiet enjoyment to their tenants, 

but the tenants who rent in a building 

have an expectation of quiet 

enjoyment. This expectation is based in 

part on the expected use of a limited 

number of residents. Renting out one’s 

unit on a platform transforms a building 

into a hotel, with a constant stream of 

visitors with the attendant noise and disruption 

that accompanies them. 

This renting is directly counter to the 

expectations and protections that longterm 

renters have of their homes. Additionally, 

in rent-controlled buildings, 

many of the renters are elderly or disabled 

and these disruptions have a 

greater effect on them. As with every situation, 

there is a balancing, and home 

sharers are not entitled to place their interest 

of making money ahead of all 

others who have an interest in living in 

an apartment building rather than a 

hotel. 

•The inherent conflict with rent control 

Short-term rentals in residential 

units often run afoul of long-standing 

zoning ordinances and laws intended to 

preserve affordable housing and other 

neighborhood characteristics. In many 

cities around the country, short-term 

rentals of residential units are prohibited. 

For instance, in San Francisco and 

New York it is generally illegal to rent a 

residential unit for tourist or transient 

use. The purpose of these laws is to protect 

one of these cities’ most scarce resources 

– residential housing. 

The short-term rental market, however, 

is lucrative and often more appealing 

to landlords than renting to longterm 

tenants who are entitled to rent 

control, just-cause evictions, and relocation 

benefits. As a result many hosts 

choose to rent to short-term visitors 

rather than to tenants on a long-term 

basis. This increasingly common decision 

results in the removal of these units 

from the housing stock. Many of these 

units are in rent-controlled apartments 

which creates further harm since the 

units are no longer available to lowerand 

moderate-income individuals. 

The loss of affordable housing 

stock could not have come at a worse 

time as rental prices are at their historical 

high in the Bay Area. A recent 

position paper by the San Francisco 

Apartment Association (SFAA) put it 

starkly: “In 2013, we lost more housing 

to travel websites than to every other 

type of eviction combined.” 3 Much is 

being done by local governments to 

address these problems and the platforms 

are being asked to assist in the 

process. Unfortunately, most have chosen 

to stay silent on their broader impact 

on local communities, while 

significant housing stock continues to 

be lost. 

As discussed below, San Francisco 

recently passed an amendment to the 

Administrative Code, dubbed the 

“AirBnB Law,” that allows limited 

rentals, but places the bulk of the tax 

and legal responsibility on hosts. Worse 

yet, the law has no real enforcement 

mechanism, while allowing the hosting 

platforms to continue to collect revenue 

streams from short-term rentals that 

violate the law. 




APRIL 2015 

• Nuisance 

A public or private nuisance involves 

a substantial and unreasonable 

interference. (People ex rel. Gallo v. Acuna 

(1997) 14 Cal.4th 1090, 1105.) What 

constitutes nuisance cannot be determined 

by any fixed general rule; it depends 

upon the facts of each particular 

case, such as nature of the use, the extent 

and frequency of the injury, the effect 

upon the enjoyment of health and 

property, and other similar factors. The 

gravity of the harm must be weighed 

against the utility of the defendant’s 

conduct. (Shields v. Wondries (1957) 154 

Cal.App.2d 249, 255.) Liability for nuisance 

does not hinge on whether the defendant 

owns, possesses, or controls the 

property, nor on whether they are in a 

position to abate the nuisance; the critical 

question is whether the defendant 

created or assisted in the creation of the 

nuisance. (County of Santa Clara v. Atlantic 

Richfield Co. (App. 6 Dist. 2006) 

137 Cal.App.4th 292. rehearing denied, 

review denied.) 

Many local and state rules prohibit 

the operation of a business in contravention 

of zoning and planning codes. 

Operating a business without a 

proper permit in a prohibited zone 

could be considered negligence per se. 

Whether the use of one’s apartment or 

home as a short-term rental constitutes 

a nuisance is actively being analyzed 

and litigated. At first glance, changing 

the use of an apartment or home into a 

commercial enterprise could constitute 

both a private and public nuisance due 

to the effect on the other occupants and 

neighbors. Lawsuits have been filed in 

San Francisco concerning this very issue. 

• Safety concerns 

Short-term rentals can create several 

safety concerns for property owners 

and neighbors. For example, short-term 

renters are often unknown and barely 

screened. These short-term renters can 

create nuisances, inflict injuries, and 

damage property. In many instances, 

those renting out the units throw parties 

and invite additional guests. With a constant 

stream of additional individuals in 

the building who do not have any longterm 

ties to the unit, break-ins and 

other thefts may occur. 

Additionally, in states that retain 

the traditional common law division of 

visitors to land invitee, licensee, and 

trespasser, the short-term renters are 

likely considered “invitees” to the property, 

which implies that the owner or 

possessor has taken reasonable steps to 

assure the safety of the premises. It is 

often uncertain, however, whether the 

premises are actually safe. What happens 

when the invitee who booked the 

unit brings their own invitees back to 

the unit? The answers are unclear, but 

the ultimate risk falls on homeowners, 

landlords, and tenants, who are generally 

ill-equipped to deal with this type of 

responsibility. 

Furthermore, it is not only tenants 

and other occupants of a building who 

complain about the constant stream of 

guests that rent units through hostingplatforms. 

Neighbors also express significant 

concern about a hotel or bed 

and breakfast springing up in their 

neighborhood because these establishments 

cause increased traffic and noise. 

Local government response to 

home-sharing platforms 

In an October 2014 report, the New 

York State Attorney General found that 

most of the short-term rentals booked in 

New York City violated state and local 

laws that prohibit residential rentals of 

less than 30 days unless the landlord or 

tenant lives in the same unit during the 

rental period. 4 The report also stated 

that commercial units accounted for a 

disproportionate share of short-term 

rentals by volume and revenue, with 94 

percent of hosts offering at most two 

units and the remaining 6 percent of 

hosts offering hundreds of units each. All 

of this resulted in the loss of thousands of 

potential residential units in New York 

City and millions in potential tax dollars 

from transient occupancy taxes. 

As a result of the report, AirBnB 

removed some hosts from its Website. 

AirBnB’s opponents, however, claim that 

thousands of additional prohibited hosts 

have since appeared on the site. Though 

AirBnB is violating New York laws and 

displacing thousands of long-term residential 

units, the New York City Council 

is still in the process of determining how 

to regulate these rentals. 

Home-sharing platforms faced similar 

issues in Portland, Oregon. In July 

2014, the Portland City Council approved 

the legalization of limited short-term 

rentals where residents rent out one or 

two bedrooms in their homes after receiving 

a permit from the Portland Bureau of 

Developmental Services. The permit is 

granted after a payment of $178, an inspection 

of the home, and notification to 

the host’s neighbors. To protect against 

the loss of long-term rental housing, permits 

are not issued to entire homes. In 

January 2015, Portland was the first city 

to add teeth to its home-sharing law. In 

response to the sparse compliance with its 

regulations, Portland added a $500 

penalty per violation that can be levied 

against either the host, the platform, or 

both. Whether that will be effectively and 

actively enforced, however, remains to be 

seen. 

San Francisco’s response to 

these violations of local laws mirrors 

Portland’s initial efforts, and, like those 

efforts, lacks an effective penalty provision 

for non-compliance. San Francisco 

passed an ordinance in October 2014 

to legalize limited short-term hosting. 

The new law legalizes vacation rentals in 

private homes. Hosts must register in 

person with the San Francisco Planning 

Department and may only rent out an 

entire home for ninety days a year, assuming 

the host lives in the unit for the 

remainder of the year. Rentals are unlimited 

for individual rooms in a house 




APRIL 2015 

where the host lives year-round. 

The law also requires hosts to display 

their city registry numbers on their online 

listings, though there is no enforcement 

mechanism in place. 

Hosting-platforms have no responsibility 

to monitor the postings and face 

no penalties for violations. To date only 

about 130 hosts out of the 5,000 listings 

in San Francisco have set up appointments 

to register with the San Francisco 

Planning Department. The Planning 

Department has not yet been able to 

develop a process to enforce the law 

against hosts and Websites that continue 

to offer rentals without the proper 

registration. 

Sharing the burden 

The “sharing economy” is a 

big industry with powerful allies. Companies 

like AirBnB and Homeaway are 

capitalized in the billions of dollars and 

many debate how these companies have 

used their contributions to further their 

business. This is why piecemeal regulations 

with illusory enforcement mechanisms 

fail to go to the heart of the 

problem, which lies in large part with 

the hosting platforms themselves. 

In the absence of effective legislative 

action, the Hooshmand Law Group 

has filed class-action lawsuits against 

AirBnB and Homeaway for violations of 

the San Francisco administrative code 

and state law. The lawsuits allege that 

short-term rental Websites knowingly 

and actively facilitate short-term rentals 

in prohibited areas thereby removing 

scarce housing from the already depleted 

housing market. The complaints 

seek to address both categories of risk 

posed by these hosting platforms – prohibited 

short-term rentals and potential 

dangers to homeowners and neighbors. 

The lawsuits target these short-term 

rental Websites, alleging that their level 

of participation in the process while 

being aware of the extent of the problem 

is significant. The lawsuit claims 

that these websites could easily filter out 

the prohibited listings and ensure compliance 

with local housing ordinances. 

Conclusion 

Despite its allure, home sharing 

poses significant risks to all involved. 

Hosts are not adequately protected due 

to the lack of adequate insurance. Landlords 

are at risk to the extent they are 

aware of the activity and do not act 

quickly to address it. Other tenants and 

neighbors are affected by the noise and 

disruption the rentals cause. What is 

necessary is a smart and comprehensive 

approach to addressing the risks and 

concerns caused by short-term rentals. 

Mark Hooshmand 

is a partner with the 

Hooshmand Law Group, 

a tenant and consumer 

rights litigation and class 

action firm. Hooshmand has 

over 15 years of experience 

Hooshmand 

representing clients in consumer 

matters, tenant matters and business 

litigation. Contributing to the article: Ian 

Hansen, Stephanie Foster, Tyson Redenbarger, 

Eric Kim, and Idin Kashefipour; 

associates with the Hooshmand Law Group. 

Endnotes 

1 

Carolyn Said, “Leaked transcript shows Geico’s stance 

against Uber, Lyft” SFGate (November 23, 2014). 

2 

Ron Lieber, “A Liability Risk for Airbnb Hosts” New York 

Times (December 5, 2014); Ron Lieber, “The Insurance Market 

Mystifies an Airbnb Host” New York Times (December 19, 

2014); Jason Notte, “This Is How Much Insurance You’ll Need 

Before Renting Out a Vacation Home” Main Street (March 6, 

2015). 

3 

“SFAA Position Paper: Short-Term Rental Websites and the 

Illegal Conversion of Our Residential Rent-Controlled Housing 

Stock”, available at: http://www.sfaa.org/pdf/SFAA-Position- 

Paper-Short-Term-Rentals.pdf. 

4 

Eric T. Schneiderman, “Airbnb in the city” (October 2014), 

available at: http://www.ag.ny.gov/pdfs/Airbnb%20report.pdf.

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