Airbnb Hosts Face Uphill Battle Against Chicago Ordinance

CHICAGO (CN) – Opponents of what they call Chicago’s “draconian” ordinance regulating Airbnb rentals faced an unsympathetic Seventh Circuit panel at oral arguments Monday morning.

At Monday’s hearing, U.S. Circuit Judge Frank Easterbrook analogized Chicago’s Airbnb regulations to the laws regulating a public company’s required financial disclosures or the speech of attorneys.

“Do you think that requiring attorneys to pass the bar violates the First Amendment?” Easterbrook asked the Airbnb hosts’ attorney Shorge Sato.

In 2016, the Chicago City Council passed a 58-page ordinance governing home sharing that placed new requirements on would-be hosts.

The law, which went into effect in 2017, requires hosts who list a room on Airbnb, HomeAway, or other sharing platforms to register with the city, and requires the websites they use to report personal and transaction information about each of them.

The ordinance also requires that hosts comply with commercial kitchen requirements, prohibits them from serving food to guests, and mandates that they have no pets or children at the residence. Violators may be subject to a $1,000-$5,000 fine per day.

Keep Chicago Livable, a home-sharing host advocacy group, and Chicago resident and Airbnb host Benjamin Wolf filed a class-action lawsuit on behalf of a proposed subclass of Chicago hosts who rent their properties on sites like Airbnb, claiming that the new rules violate the First Amendment, and place “impossible burdens on hosts.”

A federal judge denied the plaintiffs a preliminary injunction to block the ordinance, and they appealed that ruling to the Seventh Circuit.

Sato, who represents the hosts and Keep Chicago Livable, told the panel on Monday that the ordinance implicates First Amendment freedoms because the “demarcation between what is regulated and what is not is whether it is advertised” on a targeted online website, especially Airbnb.

But the Chicago-based federal appeals court seemed highly unlikely Monday to reverse the lower court’s decision.

“Under your argument, all securities laws, all food and drug laws, and all laws regulating attorneys would be unconstitutional,” Judge Easterbrook said. “I think you have a lot of trouble reconciling your argument with the current legal system.”

However, Easterbrook also cautioned Chicago city attorney Stephen Collins not to go too far in arguing for limits on the scope of First Amendment protection when Collins told the court that the U.S. Constitution does not protect illegal activity, such as the rental of unregistered units.

Judge Easterbrook interrupted, “Suppose I say ‘We should overthrow the U.S. government,’ which is illegal.”

Especially given how the U.S. won its independence from Britain, “You can’t say that any speech that advocates illegal activity is not covered by the First Amendment,” Easterbrook said.

This year, the city sent out 2,400 notices rejecting Airbnb hosts’ applications to register under the ordinance, and warning them they must remove their room from the website within 7 days or face fines.

On top of this, the home-sharing websites must pay a $10,000 annual fee to legally operate in the city, a $60 per unit fee and a 4 percent tax on all bookings – on top of a 17.4 percent hotel tax – that Chicago Mayor Rahm Emanuel says will be used to combat homelessness.

Chicago also put a cap on how many units can be listed on home-sharing sites for various types of buildings, and building owners and managers can add their building to a “prohibited list” without notifying tenants or unit owners, meaning hosts may be violating the ordinance without even knowing it.

According to a study commissioned by Airbnb, Chicago had 4,550 hosts in 70 of its neighborhoods who served 165,800 guests between June 2014 and June 2015. The number of hosts in the city has doubled every year since 2009.

U.S. Circuit Judges Joel Flaum and Michael Scudder joined Easterbrook on Monday’s panel. The Seventh Circuit is expected to rule on the matter within three months.

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