airbnbiowa
991 days ago
 

Reality bites – Airbnb told to register as seller of travel

Is Airbnb merely a “neutral venue” enabling users to arrange stays with one another?

That’s the picture that Airbnb paints of itself, as apartment/condo/vacation rental owners or renters use the website and its tools to offer their rooms for a night or two or three to travelers.

But authorities in the state of Iowa in the US disagree, and attorneys at its Secretary of State’s office plan to send a letter to Airbnb advising the company that it should register for the state’s seller of travel law.

The Iowa law “requires persons who market travel promotions in Iowa to register with the Secretary of State and post a $10,000 bond or alternative form of financial security, such as a letter of credit.”

The registration fee is $15 — well within Airbnb’s means considering its latest $112 million funding round — but if a court ever found that Airbnb failed to register and violated the Consumer Fraud Act, then Airbnb or any other company in similar straits could “be liable for a civil penalty of not less than three times the sum so received, as may be determined by the court…”

Failure to register 30 days after the fee is due is a “serious misdemeanor,” the law says.

Erin Rapp, a spokeswoman for the Iowa Secretary of State’s office, says attorneys reviewed how Airbnb operates. “We believe they are subject to the travel law if they transact business with Iowans,” she says.

Airbnb clearly lists Iowa properties and does business with state residents.

airbnbiowa

Several US states have seller of travel laws requiring registration, but the definitions of who must register vary widely.

For example, while Iowa believes Airbnb must register, authorities in California and Florida say Airbnb does not appear to fall within their requirements.

The California Attorney General’s office indicated that it doesn’t appear that Airbnb is a seller of travel as defined by California law and it is not registered.

The California law only applies to companies which arrange or advertise flights, sea transportation [ie. cruises or ferries], and/or ground transportation.

Airbnb doesn’t appear to provide or help arrange these kinds of services.

Al Anolik, a travel attorney in California, cautions that Airbnb would become subject to California registration if it expands into flights, ground or sea transportation or, arguably more likely, even if just decides to run advertisements for those services online or in newsletters.

He notes that a major supermarket chain had to register in California when it began offering coupons for flights.

Companies failing to register when they are required to do so in California are subject to civil and criminal penalties and “cease and desist” orders, Anolik says.

And, authorities in Florida say it does not appear that Airbnb would be required to register as a travel seller in that state because it doesn’t sell vacation packages.

Many of the states with registration laws gear them toward travel agencies, but Airbnb describes itself instead as a “neutral venue.”

“Our site is an online venue through which users find and learn about each other. Our site is merely a venue for users to learn about one another and, if they wish, arrange stays with one another. We are not involved in the actual face-to-face contact between users. As a result, we have no control over the conduct of users or the truth or accuracy of the information that users post on the site.”

But, unlike vacation rental giant  HomeAway, which gets most of its revenue from listing fees, Airbnb lists properties for “free”. However, Airbnb gets a cut of each rental transaction and collects service fees.

Do these fees resemble travel agency commissions?

Airbnb collects guests’ credit card information, holds 100% of the funds for guest stays until 24 to 48 hours after check-in, remits the funds to the host, and deducts 3% as its service fee for processing the guest’s reservation, according to its website. It also gets extra fees for additional, optional services, Airbnb says.

Airbnb, with its disruptive “person to person” marketplace, has been much in the news of late because of two reported incidents in which hosts’ homes were trashed by guests.

The company has been battered in social media and is introducing  a $50,000 Airbnb Guarantee for property damage in the event of vandalism.

In the interim, Airbnb says it currently processes damage claims from hosts and deducts payments to cover the losses from guests’ credit cards on file.

So Airbnb, some might argue, is going beyond being the mere provider of a marketplace. It processes credit card transactions, holds the funds until after check-in, deducts service fees and handles damage claims.

And, with new business models emerging for person-to-person commerce  – if that is indeed what it is — laws in US states and in other countries inevitably will evolve, as well, to regulate such practices.

In addition to seller of travel laws, some jurisdictions such as New York, outlaw vacation rentals of less than 30 days and this seemingly could be another legal obstacle to Airbnb’s business model.

Paris, too, is apparently cracking down on short-term apartment rentals.

And, what about the issue of subletting?

Many apartment leases ban subletting so how can renters list properties they don’t own on Airbnb?

Mark Pestronk, a travel attorney in Washington, DC, says website disclaimers could buffet Airbnb from liability claims on several fronts.

“The website terms and conditions could well disclaim all liability for damage to the apartment, as well as for the  apartment’s true owner’s decision not to allow a tenant to sublease or swap,” Pestronk says. “That would take care of Airbnb’s liability to the owner.”

Pestronk also thinks Airbnb would be immune to claims that it doesn’t adequately investigate hosts and guests.

“I know of no law or case imposing liability for failure to investigate the bona fides of a website user,” Pestronk says.

Clearly, Airbnb and other person-to-person providers of vacation home and even car rentals, could have a disruptive impact in the marketplace.

And, in the years to come, they could be a disruptive force in various countries’ regulatory rules of engagement, as well.

NB: Airbnb didn’t immediately respond to questions about the Iowa seller of travel law, other legal issues and an earlier request about its new guarantee system.

 
 
Dennis Schaal

About the Writer :: Dennis Schaal

Dennis Schaal was North American editor for Tnooz.

 

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  5. Alvaro Cervera

    I think airbnb’s concept is and will remain brilliant as long as they realize what their core business is. In my opinion they should for now remain as a reservations agency for self catered Independent apartments managed by owners or by property managers. Each jurisdiction has its pecularities that can be managed locally but are extremely hard to be managed centrally by airbnb.
    Nevertheless its a great step ahead in short term rentals business, like amadeus and sabre were for hotel and airline business.

     
  6. Lulu

    Airbnb is a nightmare for property owners. I’ve had a little vacation rental house in LA for 7 years, before there were any in the San Fernando Valley. I’ve never had a problem, risked my other tenants safety or incurred any damages……because…… (wait for it)…..I was able to control ALL of the transaction related to my property.

    Can you imagine if I accepted a blind reservation from someone I am not even able to speak with on the phone? And now I owe them right to my property…and if I cancel or change my mind, I pay damages to them?

    What happens when some nut shows up to sexually assault my neighbor? Who pays for that?

    At least with Homeaway, VRBO, Flipkey I have protections from the company itself, I also have protections in that I control the damage deposit and I have protections from cancellations, because I control my refund policy. Property is worth hundreds of thousands of dollars. The safety of my neighbors is priceless. As a property owner, do I really need to risk a million dollar lawsuit from someone I’ve never had contact with or a lease with?

    The other thing is that….are they 1099ing the property owner at the end of the year for the income collected? I couldn’t get a straight answer from the sales guy.

    The sad part of this is that vacationers will see the ease of leasing from the site with no risk and will be hoodwinked into thinking it’s a great idea. With reall sites, being too much hassle.

    The European ad shows a fella (stranger) staying with a single woman and her child (!) Really? And on what planet is that a good idea!?

    Leasing a property is a legal transaction. All parties must have protections. That’s what the laws are for. That’s what the company is skirting.

    Pilfering money in the millions with zero liability or responsibility should be the tagline on the site.

     
    • Jill

      LuLu….have you bothered to take a look at AirBNB? I recently rented my home twice through AirBNB with no problems. Yes you can talk on the phone with the prospective tenant before the transaction. Yes you can make sure a deposit is taken. I made sure that I met someone related to the people staying in my home so I took extra precautions but the site is legit and all of the people I know who have used it have had similar success. Also AirBNB provides an insurance plan for any damages beyond the deposit amount. I’ve felt very safe using them but I also trust myself to make the choice for who will stay with me. I’ve declined several people based on the ratings they received from other landlords or because they didn’t have a reference posted at the site from previous stays.

       
  7. Timothy O'Neil-Dunne

    There are a heap of issues here. Dennis has done a great job in detailing just one aspect. There are many more as others have alluded to.

    In my opinion Airbnb is attempting to do something of value to the consumer. IE provide alternative forms of accommodation to consumers in stays at a remote location. This is good and is to be applauded for enhancing the P2P marketplace. Whether they do a good job at that is not within the scope of my comments here.

    If this is such a good idea how come no one else thought to do this before? The answer is that they did but not to the level of Airbnb. However several players have looked at this in the past and concluded that there is a degree of risk involved. Thus the risk constraints and problem/cost of aggregating presented too much of a challenge for most others who looked at this/attempted it.

    Airbnb seems to believe it has struck a gold seam by simplifying the process and acting as the middle man by taking the money. In doing so sure – it makes the process easier for the consumer but in my opinion that makes them a commercial party to the transaction. Thus it makes them no longer an innocent party in a P2P space. Rather they look and behave like something else. The apologia from its CEO notwithstanding it matters not what sort of animal Airbnb thinks it is. It only matters what the relevant city, state, national and international bodies(who may have jurisdiction) determine what it is. In that – the scope of regulations – is mind boggling.

    With Iowa realizing that it has specific regulations that were/are being ignored – the other states will be thinking too. A more jaundiced eye (such as mine) may conclude that CA and FL will want to evaluate carefully their positions now that Iowa, who has similar laws (as do at least 5 other states), has so determined.

    Airbnb somehow seems to have managed to avoid the type of issue (as the now famous EJ encountered) in selling its first one sqillion room nights. Although I find that very hard to believe that they could have escaped this far without creating some problem with either a renter or an accommodation provider to this point in time.

    I hope that for Airbnb’s sake – and those of its customers (on both sides) – they have good lawyers who should be evaluating the various other legal positions and issues.

    Cheers

     
  8. Greg S.

    I think there are two sides to every story. I’m not sure this is one of those evil corporation events. For instance, look at this infograhpic I came across: http://bit.ly/pVWjie.

     
  9. Ashwin Kamlani

    What I find most interesting about this development is that it puts airbnb at much greater risk and liability. You guys are looking at the liability for damage to a property but what about to a client? If you book a fabulous looking hotel on an OTA and when you get there it is a complete dump and possibly something bad happens to you while you are there, the OTA would get sued and they would lose for misrepresenting the property. It seems to me that airbnb is trying to go down the ebay route by saying “we are just providing a marketplace. Use feedback ratings to make smart decisions.” But if they are forced to register as a seller of travel it could be argued that they are responsible for the travel they are selling.

     
  10. Dennis Schaal

    Dennis Schaal

    Tony: It’s a big, wide world of travel sellers out there. A lot of these states’ attorney generals’ offices or consumer affairs offices aren’t out there patroling for travel “offenders” as their top priority.

    Often, they spring into action when a competitor or consumer complains (or when they get a press inquiry) and it comes to their attention.

    I don’t know the details about Rick Steve’s site, but perhaps this has something to do with it.

     
  11. Tony

    Rick Steve’s site has been up for several years. It sells tours (which obviously includes air and ground transportation).
    I haven’t seen a California Seller or Travel Number conspicuously displayed in Rick Steve’s website for years. I checked with the CA website and there is no registration under his name or his Europe Through the Back Door tour company. So why doesn’t California go after such a famous and prominent travel guy?

     
  12. Murray Harrold

    One may say that, irrespective of what any terms and conditions may say or try to say – if it appears that they rent accommodation, you pay them to rent accommodation and you get an accommodation from or via them – they rent accommodation.

    What people must remember is this: the regulations in travel have nothing to do with bureaucrats or local authorities wanting to make money or anything else. It is to do with the safety of the people on both sides of the equation and that both for the physical safety as well as the financial safety, not to mention the surety of any given booking. It is only a matter of time before someone gets hurt; it is only a matter of time before people start to get ripped off – and all those presently inside pi**ing out, will be the first to be outside pi**ing in (to borrow a phrase from one US President).

    In the UK we have an expression that covers this sort of outfit – we call them (and it’s ironic that the first state to make a noise is Iowa) – cowboys.

     
    • Den

      I’m sorry, Murray, but since when has a hotel tax made you “safe” as a guest? Please identify one thing that these hotel taxes do to provide for the physical and/or financial safety (as you put it) of either the guest or host at any hotel where they are paid. My guess: zero.

      Of COURSE it is a revenue source, and another example of bloated bureaucracy self-perpetuating and bogging down the flow of natural commerce.

       
  13. Hotel Haiku

    I wonder what insurance companies make of the Airbnb model?

    Would they be happy paying out for damages incurred as a result of sub-letters, or even homeowners, letting their home out to total strangers?

    My guess is no, they wouldn’t pay out.

     
  14. Dennis Schaal

    Dennis Schaal

    Robert: Per your latter point about hotel taxes. Does any of the following, from Airbnb’s terms and conditions, sound familiar?

    7.6 Taxes. Airbnb does not do business as an owner or operator of hotel or motel rooms, nor is it a provider of rooms, lodging or accommodations. Neither does Airbnb own, sell, resell, furnish, provide, rent, re-rent, manage and/or control hotel rooms, motel rooms or any other lodgings or accommodations. Airbnb does not act as an agent for any providers or users of hotel rooms, motel rooms, or other lodging or accommodations. Airbnb merely makes available a marketplace for Hosts and Travelers to meet and arrange for accommodations. Airbnb is not a contracting agent or representative of the Host or Traveler. Instead, Airbnb’s role is solely to facilitate the availability of this marketplace for the Host and Traveler and to provide services related thereto, and any agreement for the use of any accommodations is solely between the Host and Traveler, and not Airbnb. You understand that we are acting solely as an intermediary for the collection of rents and fees between you and any hosts or guests with whom you choose to enter into a transaction. IRS regulation, regarding federal tax reporting requirements, stipulates that Airbnb must collect IRS Form W-9 from any property owners in the United States that earn more than $600 in 2010. Because state and local tax laws vary significantly by locality, you understand and agree that you are solely responsible for determining your own tax reporting requirements in consultation with tax advisors. We cannot and do not offer tax advice to either hosts or guests.

     
  15. RobertKCole

    Additionally, there may also be a hotel room occupancy tax implication on Airbnb’s margins – let alone an income tax issue for the hosts.

    Cash strapped local jurisdictions are actively seeking easy sources of revenue that do not impact their constituencies.

     
    • Jack Black

      Also Airbnb are not VAT registered in the UK and the land and property laws in the UK state that they should be VAT registered and collecting and paying VAT, this would be 20% of the total commission / markup price they charge. I think they only need to turn over £75K from revenue obtained through advertising UK based accommodation to be required to be VAT registered, so if they are it would seem they may well be well be investigated by the UK revenue & customs. I am not an accountant but this is what I have been told, some accountants may wish to comment. It seems a little unfair that UK websites based on the same business model are forced to charge/collect VAT and airbnb are competing with established UK businesses and able to charge a lower rate, perhaps all the UK businesses with the same business model should move from the UK.

       
  16. RobertKCole

    As I have mentioned before, there are lots of moving parts and complexities involved in the travel. The industry graveyard is littered with the bones of those who entered naively… including some with very good ideas and/or highly disruptive business models…

     
  17. Lysetto Paige

    Utterly ridiculous. The new economy is moving too fast for these sniveling bureaucrats to understand. Shame on Iowa

     
 
 

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