Is it Legal Listing a Townhouse for Rent in NYC on Airbnb?

Owners of New York City townhouses who wish to list their property on Airbnb for short-term rentals must understand and comply with the following laws:

• The New York State Multiple Dwelling Law (MDL);
• The New York City Administrative Code’s occupancy and use requirements;
• The N.Y.C. Admin. Code’s safety requirements;
• The Hotel Room Occupancy Tax and state and local sales taxes; and
• Other requirements may also apply.

1. New York Multiple Dwelling Law

 The MDL regulates the use of “multiple dwellings.” A multiple dwelling is a building or structure or portion thereof that is rented, leased, let or hired out, to be occupied, or is occupied as the residence or home of at least three families living independently of each other.[1] Such structures are further classified as “Class A” or “Class B.”[2]

A Class A multiple dwelling is a multiple dwelling that is occupied for permanent residence purposes—occupancy of a dwelling unit by the same natural person or family for 30 consecutive days or more.[3] Subject to some exceptions, Class A multiple dwellings can only be used for permanent residence purposes,[4] meaning short-term leases are illegal in such properties.

A Class B multiple dwelling is a multiple dwelling that is occupied, as a rule transiently, as the more or less temporary abode of individuals or families.[5]

A townhouse used as a one- or two-family home would not qualify as a multiple dwelling, and so would not generally be subject to the MDL’s regulations.

2. Certificate of Occupancy

 Except for certain buildings built before 1938[6], every building in New York City must have a certificate of occupancy (C/O).[7] The C/O lists the permitted use and occupancy for the building.[8] Residential properties are generally classified in one of the following groups[9]:

• R-1: Residential buildings or spaces occupied transiently, for a period of less than one month.[10]
• R-2: Buildings or portions thereof containing sleeping units or more than two dwelling units that are occupied for permanent residence purposes, for a period of at least 30 days.[11]
• R-3: Buildings or portions thereof containing no more than two dwelling units, occupied for shelter and sleeping accommodations on a long-term basis for at least a month at a time.[12]

One- and two-family dwellings are specifically included in the definition of R-3. The applicable definitions of one- and two-family dwellings require that they be “occupied exclusively for residence purposes on a long-term basis for more than a month at a time by not more than” one or two families.[13]

The applicable definition of family, in turn, may provide some ability for short-term leases of R-3 property. That definition includes an individual or two or more relatives occupying a dwelling unit and maintaining a common household with not more than two boarders, roomers, or lodgers.[14]

However, to “maintain a common household” with boarders, roomers, or lodgers, the permanent occupant must occupy the property with the boarders, roomers, or lodgers; and all household members must have access to all parts of the dwelling unit.[15]

In addition, in at least one case[16], a New York court has interpreted similar “within the household” language in the MDL not to apply when a temporary occupant pays to use the property. Consequently, it is possible that a court could follow suit and hold that payment of a fee for short-term rental of an R-3 property is contrary to the restrictions that apply to such homes.

New York City law makes it illegal to use or occupy a building contrary to its C/O without first obtaining a new C/O.[17] R-3 buildings may only be used “on a long-term basis.” A short-term lease that does not come within the exception for boarders, roomers, or lodgers requires the owner to obtain an amended C/O classifying the building in group R-1.[18]

3. Safety Features

To qualify for classification in group R-1, a building or structure must satisfy certain additional safety requirements, including those relating to fire alarm systems[19], sprinkler systems[20], and means of egress.[21]

4. Hotel Room Occupancy Tax

In New York City, hotel rooms are subject to a 14.75% tax, which includes the New York City Hotel Room Occupancy Tax (HOT), the New York City Sales Tax, and the New York State Sales Tax.[22] A “hotel” is a building or portion of it which is regularly used and kept open as such for the lodging of guests.[23]

A home or room regularly listed on Airbnb may satisfy the definition of a room in a hotel.[24] Any person operating a hotel (the operator) must collect the above taxes. To do so, the operator must file a Certificate of Registration application with the Department of Finance and obtain a Certificate of Authority to collect the HOT.[25]

5. Other Requirements

In addition to the above requirements, a townhouse owner may need to take additional steps depending on where in the City his or her townhouse is located. For example, the owner may need to seek a change in zoning or obtain a zoning variance before he or she can legally lease the home on a short-term basis.

Conclusion

State and local law in New York City heavily regulate the use of residential properties. Although the MDL’s restrictions on short-term leases will generally not apply to a one- or two-family townhouse, the City’s Administrative Code and the townhouse’s certificate of occupancy impose similar restrictions on R-3 residences.

To avoid those restrictions, a townhouse owner must ensure that the property satisfies the safety-feature requirements of the R-1 classification and apply for a new C/O. In addition, he or she may be required to register for and collect the Hotel Room Occupancy Tax and apply for a change in zoning.

[1] MDL § 4(7).

[2] Id. § 4(8) – (9).

[3] Id. § 4(8)(a).

[4] Id.

[5] Id. § 4(9)

[6] See N.Y.C. Admin Code § 28-118.3.4.

[7] Id. § 28-118.1.

[8] Id. § 28-118.6(8).

[9] Id. § BC 310.1. Some properties’ C/Os use the classification system of the 1968 Building Code, in which residential properties were generally classified as J-1, J-2, or J-3. See, e.g., NYC v. Clinton Rising, LLC (ECB Appeal No. 1601026, December 1, 2016); see also N.Y.C. Admin. Code §§ 27-263 to 266.

[10] N.Y.C. Admin. Code § 310.1.1.

[11] Id. § 310.1.2.

[12] Id. § 310.1.3.

[13] Id. § 310.2.

[14] Id.

[15] See id.

[16] Brookford v. Penraat, 8 N.Y.S.3d 859 (N.Y. Sup. Ct. 2014).

[17] N.Y.C. Admin. Code § 28-118.3.2.

[18] See, e.g., NYC v. Pellegrini (ECB Appeal No. 1700454, July 6, 2017)

[19] N.Y.C. Admin. Code § BC 907.2.8

[20] Id. § BC 903.2.

[21] Id. § BC 1018.1.

[22] See Airbnb v. Schneiderman, 989 N.Y.S.2d 786, 790 (N.Y. Sup. Ct. 2014).

[23] New York State Tax Law § 1101(c)(1).

[24] See Airbnb, 989 N.Y.S. 2d at 790.

[25] http://www1.nyc.gov/site/finance/taxes/business-hotel-room-occupancy-tax.page