Property owners, including cooperatives and landlords, continue to struggle with the problems arising when a tenant allows strangers to have access to the premises after listing them on websites such as Airbnb, in violation of the lease or other governing documents. (For a previous discussion of statutes and some court decisions relevant to this issue, please see the September 2015 issue of this Client Advisory.)  However, tenants caught profiteering from such unauthorized Airbnb rentals may face serious consequences, which in the case of a rent-stabilized tenant may include termination of the tenant’s lease and loss of the apartment.

Goldstein v. Lipetz, 2017 N.Y. App. Div. LEXIS 4006, 2017 N.Y. Slip Op 04070 (1st Dep’t May 23, 2017), is such a case. In this case, an appellate court held by majority vote that a landlord had validly terminated a rent-stabilized tenant’s lease and could evict the tenant from her apartment.  The landlord established on a motion for summary judgment that the tenant had sublet her Greenwich Village apartment via Airbnb at market rates, thereby realizing substantial profits not lawfully available to the landlord.  The landlord established that the tenant had rented her apartment via Airbnb on at least 93 separate occasions totaling 338 days over an 18-month period.  The tenant received total net income of $33,592 from the rentals while the stabilized rent for the same 338 days was $19,536.40.  Thus, defendant realized a 72% profit from her subletting — about seven times the 10% premium permitted for otherwise lawful sublets of furnished rent-stabilized apartments under the Rent Stabilization Code.

The court rejected the tenant’s argument that the 93 transient, short-term, paying guests she hosted over a year and a half were legally permissible “roommates” and found that they were unauthorized subtenants. The court also rejected the tenant’s argument that even if the Airbnb rentals were improper, any violations of her lease were “de minimis, short term and insubstantial.”  In the court’s words, “[t]he law is clear that a rent-stabilized tenant who sublets her apartment at market rates to realize substantial profits not lawfully available to the landlord, and does so systematically, for a substantial length of time, places herself in jeopardy of having her lease terminated on that ground, with no right to cure.”

The court likewise rejected the tenant’s assertion that an agent of the landlord was aware of the subletting. The person with whom the tenant allegedly discussed her intent to sublet her apartment was an agent of the Cooperative that owns the building.  However, the tenant’s lease was with the holder of the shares and proprietary lease corresponding to her apartment, not the Cooperative.  Thus, any conversation that the tenant might allegedly have had with the Cooperative’s agent was a “red herring.”  Moreover, far from authorizing the subletting, the Cooperative’s managing agent threatened to terminate the landlord’s own proprietary lease if the unauthorized subletting continued.

The court’s decision in this case was by a split 3-to-2 vote. It was undisputed that the tenant is 69 years old, lived in the apartment for 40 years, and suffers from cancer.  The three judges in the majority held that despite these facts, “[t]he blatancy of defendant’s commercialization of her apartment” and the length of time over which her conduct continued warranted termination of her lease without an opportunity to cure.  In these judges’ view, the tenant’s “exploitation of her rent-stabilized leasehold disregarded, not only the rights of her landlord, but also the rights of her fellow permanent residents of the building, whether shareholders or lessees.  The other residents did not bargain to share the building where they made their home with a continuous stream of transient strangers (to defendant no less than herself) of unknown character and reputation, drawn to the building from all over the world by Internet advertising.”

On the other hand, a two-judge dissenting opinion emphasized that the tenant began listing her apartment only on Airbnb only after she was diagnosed with cancer, lost her job, underwent six operations, was out of work for over a year, needed additional income with which to pay her rent, and notified the Cooperative’s property manager each time a guest stayed in the apartment. Under these circumstances, the dissenters concluded, a trial was warranted to determine whether the tenant “engaged in profiteering, or rather used Airbnb to continue to live in her long-time home, which would not be inconsistent with the purposes of the Rent Stabilization Law.”