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.

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.