Airbnb, Uber, Lyft, and countless other platforms are now facilitating transportation, meals, short-term rentals, cleaning services, babysitting, and even parking. These companies make up what is called “the sharing economy,” or the “peer-to-peer economy.” The abundance of companies using this relatively new business model has brought up a whole host of legal questions that local governments are just starting to grapple with. In some places, that means cracking down on users who are violating current laws and in other places that means changing the laws. But how does the law catch up with a new business model that is already widely in use?

Turning Homes into Hotels

When Ariel Lewis moved into her house last year. She was 37 years old and a first time homeowner. Lewis says she had always dreamed of being homeowner, “But it certainly changed what my monthly expenses were going to be compared to when I was renting. At first it was scary.”

Lewis had a one-room building out back. At first, she wasn’t sure what to do with it. The space is what is sometimes called a “mother-in-law unit.” The building has running water and electricity and is basically the size of a studio apartment. A friend suggested she try supplementing her income by renting it out on Airbnb.

Lewis was not sure people would want to stay at there because her home is not in a trendy part of Portland. But it turns out her listing for a “studio cabin” called the Woodshed was pretty attractive to travelers. Lewis says it has been booked up since she started listing it on Airbnb in November.

The listing created a financial windfall for Lewis.  She can pay her entire mortgage with the income she receives from her Airbnb rental. There is only one problem.  What Lewis is doing is technically illegal because she does not have a short-term rental permit from the city of Portland-not yet anyway.

Many people like Lewis do not think twice about listing short-term rentals through sites like Airbnb, VRBO, HomeAway and even Craigslist. It is not because cities have outlawed these kinds of rentals.  The problem is that they are not included in many city codes. Which means most renters are often violating some kind of local law — zoning laws, safety regulations, and tax codes—without even knowing it.

Cities are dealing with this situation in different ways. New York has a plan to take “aggressive enforcement actions” against so-called “illegal hotels.” In New Orleans short-term rentals are illegal, but to date the city has done little to crack down on the people who run them. Portland, Oregon is taking a different approach. The city council decided to change the rules to make short-term rentals legal. Portland Mayor Charlie Hales is leading the charge. Hales says he would like to see short-term rentals legalized in Portland because cities-no matter the size-can not prevent the inevitable. “Little old Portland, Oregon, or frankly even little old New York City, is not going to stop that tide. So I’d rather be, stay with it and surf with it, if you will, than get washed away by it.”

Catching Up with Reality

Attorney Janelle Orsi is the co-founder and executive director of the Sustainable Economies Law Center in Oakland, California. Orsi wrote the book, “Practicing Law in the Sharing Economy.” Orsi’s clients are cooperatives and other groups of people who are sharing resources, not always for profit.

Janelle Orsi believes that new legislation is inevitable.  She says, “Every city in every state will probably have multiple pieces of legislation that will start to carve out the space for the sharing economy or set limits on it.”

Portland came up with a permitting process for short-term rentals after public comment from Airbnb users, neighborhood associations, and affordable housing advocates. Airbnb has also been working closely with the city as they hammer out the details. Mayor Charlie Hales described the process as collaborative. He imagines Airbnb is not completely happy about being regulated. “No business welcomes regulations. But my sense is that we really did get to “yes” with them and achieve a success here in terms of a reasonable level of regulation.”

Attorney Janelle Orsi says it concerns her when large cities like Portland work closely with companies like Airbnb. “The policy makers are listening to those companies but are not necessarily thinking more broadly about how sharing takes place in communities.”

Orsi believes when cities work only with large corporations, it is the corporate vision of sharing that wins out. She worries that new regulations could limit simple transactions-like a Craigslist ad seeking a ride in exchange for gas money. She wants lawmakers to consider these common ways people have been sharing as well as the new, shiny platforms like Uber and Airbnb.

To Follow or Ignore the Law?

 

Now that Portland has a permitting process, the question for the more than 1,000 Airbnb hosts operating in the city is this. Do they stop doing what they’re doing until they get a legal permit or do they openly ignore the law?

Ariel Lewis, who rents out the “cabin studio” in her back yard, says she does not intend to stop renting out her place while she waits for her permit application to work its way through the system. Portland Mayor Charles Hales says Lewis’ disregard for the law is O.K for now. “We’re giving people a grace period, allowing them time to get signed up and registered. We’re not chasing people around hitting them with code violations.”

In Portland, there has been a slow trickle of permit applications, which is kind of surprising because the permit is not cost prohibitive.  The permit costs $178.08 for an entire year. Part of the problem is that Portland’s permitting process is so new that a lot of Airbnb hosts do not even know it exists. Ariel Lewis found out about the laws, in part, because of this story.

Lewis says she did not consider the legal issues when she first signed up for Airbnb because the site was up and people were using it. She just assumed it was legal. This raises the question, “What responsibility do companies have to make sure their users are at least aware of local laws?”

Terms of use are usually buried in contracts and agreements that people click on without thinking.  Airbnb puts their terms of use in all caps at the top of theirterms of use page. “Hosts should review local laws before listing a space on Airbnb. Even when prominently place, most people do not read a website’s terms of use. A lot of people might make the kind of assumption Ariel Lewis made, that if a service is up and running, it must people legal, even when it is not.

Two Cities, One Company, Different Laws

 

Ride-sharing platforms Uber and Lyft actually operate illegally in more than a dozen cities. including Ann Arbor, San Francisco, Philadelphia, and Burlington. Uber declined interview requests for this story.  Their website states that “Uber is not a transportation provider.” This declaration has repeatedly been the company’s argument. Uber argues they are simply a platform and that since they do not offer transportation services directly, transportation regulations do not apply to them. Several city attorneys disagree.

Take Portland’s neighbor across the Columbia River: Vancouver, Washington. Vancouver is a small city with a population roughly a quarter the size of Portland’s. It is technically in a different state, but if there is not a lot of traffic on the bridge, it takes about 12 minutes to get to downtown Vancouver from Northeast Portland.

Brent Boger is Vancouver’s assistant city attorney. He put out a legal memo to the city manager in July that said what Uber is doing is a violation of the Vancouver municipal code.

Boger explained that ride-sharing services fall under the city’s taxi code. And there are a number of things companies like Uber would have to change in order to comply with that code.

Boger says, “Each individual Uber owner would have to have eight taxis, they would have to look alike, they have to have a place of business.”

Since Boger issued his memo saying that Uber is operating illegally in Vancouver, the City Council decided that they want to try to figure out how to change the taxi law. But in the meantime, the city of Vancouver will not bother enforcing the current law.

Which is why it is really easy to get an Uber driver to pick you up right outside Vancouver’s City Hall, but impossible at the Portland’s airport. When travelers land in Portland and open up the Uber app it reads, “Uber has not arrived in Portland.” Below is a brief explanation that  “Antiquated regulations make Uber in Portland impossible. We’re working to change that.”

How did Portland get a company that is openly flouting several cities’ laws to abide by its “antiquated regulations?” Josh Alpert is the director of strategic initiatives in the Portland mayor’s office. He has been in most of the meetings with Uber representatives. Alpert says they have a carrot and stick approach.  The carrot is to change the regulations so Uber could legally work in the city of Portland.  Apbert says, they’re still figuring out the stick, “It could involve impounding cars and really going after the company itself for breaking the law.” Albert says he just lets Uber know that it is in the company’s best interest to work with the city rather than try to skirt around them. In other words, that’s a nice peer-to-peer platform you’ve got there. It sure would be a shame if anything were to happen to it.

Regulation Matters

Some cities, like Philadelphia, have impounded Uber drivers’ cars. But that punishes the driver, not the company. A lot of cities are paying attention to what’s happening in Alaska. The city of Anchorage recently filed a lawsuit in State Supreme Court seeking an injunction that would force Uber to stop operating there.

Across the country, lawmakers want to create regulations that will offer protection for consumers without adding so many restrictions that people will just ignore them altogether. When it comes to short-term rentals, Attorney Janelle Orsi has a radical solution.

“I think all cities should ban Airbnb and create their own platforms that people have to register and use and in that way the city knows exactly how many nights people are renting out. They can extract the taxes through that transaction and even calibrate the number of nights and the amount of income each person can get based on the needs of that particular neighborhood.

Josh Alpert in the Portland mayor’s office described it as a fascinating idea, but says that the city is not en entrepreneur.  The city’s job is to be a regulator.

Orly Lobel has thought a lot about the role of regulators. She’s a law professor at University of San Diego focusing on employment law, intellectual property, and regulation. She subscribes to a theory known as the regulatory pyramid. At the bottom of the pyramid, is the unregulated, free market. As you move up the regulatory pyramid, the need for government intervention increases. Lobel says it remains to be seen where peer-to-peer platforms fit in the pyramid.

“There are two sides in this exchange. There are consumers and there are service providers and they both need to have levels of trust and some standards in which they can operate without too much risk.”

Some users would argue that built-in review systems on sites like Airbnb and Uber are a good stand-in for regulation. But Portland mayor Charlie Hales says laws are also a practical necessity.

“You know the city of Portland is not a schoolmarm wagging our finger at everyone and telling people you have to behave or do it our way. What we’re doing here is adopting regulations that in many cases are complaint-based for where things don’t work out.”

When Things Don’t Work Out

It is easy to see how users can buy into the romantic notion that technology has moved us to a place where the law is obsolete. But those in favor of regulation say that laws both protect consumers and help govern people’s behaviors.  There are plenty of examples of things “not working out” that fall well outside the scope of online reviews. Like the guy in Oakland who rented out his home on Airbnb to a woman who turned out to be a meth addict. Or the guy who got evicted after Airbnb renters held an orgy in his Manhattan apartment.

Liability is also a huge issue for ride-sharing companies. A man in San Franciscomay lose his eye after an Uber driver allegedly attacked him with a hammer. A tragic accident that killed a 6-year-old girl prompted Uber and Lyft to change how they insure drivers. And multiple class action lawsuits claim Uber drivers should be treated as employees, with all the responsibility that entails.

Even with this abundance of lawsuits, Janelle Orsi says most of the regulation changes prompted by the sharing economy will not be decided in court. She states, “I think that most of this is going to be determined through legislation and policy-making because litigation is so expensive and time-consuming.”

Future Shares

Right now, there are a lot of unwitting scofflaws out there — people who just start using peer-to-peer platforms and don’t even realize that what they are doing isn’t legal. But as new regulations create a legal framework for these platforms, some people are still going to be scofflaws by choice. It is still unclear how cities will deal with that.

And it looks like the companies themselves are going to continue to push the legal envelope. Uber still has not gone rogue in Portland, but the company just announced it is going to start operating in four of the city’s suburbs.

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Edited by: Ann Heppermann

Produced by: Mitra Kaboli & Kaitlin Prest

Music Composed by:  Chris Zabriskie