Companies like Airbnb can be a way for residents to make extra money by sharing their homes, but some have used them to convert homes and apartments into full-time tourist rentals. In some cases, landlords have used short-term rental sites to evade DC’s rent control law by renting to tourists instead of residents. DC’s attorney general just got one such landlord to stop and pay restitution, but others are still fighting.
In April, Attorney General Karl Racine accused Ginosi USA Corporation of converting dozens of apartments in four DC apartment buildings into “the functional equivalent of hotel rooms” and renting them using its own website (not Airbnb, but with a similar business model). The owners and property management companies were also named in the lawsuit.
The two buildings most severely affected were rent-controlled properties. The Phoenix, at 1421 Massachusetts Avenue NW; and The Rodney, at 1911 R Street NW were both owned by Daro Realty, LLC and managed by Daro Management Services, LLC. These two companies just settled—which means that dozens of rent-controlled apartments will now be restored to the market and the landlord will pay $210,000 in restitution.
However, the other landlords and Ginosi continue to battle the District in court.
What went wrong here
Ginosi’s business model, according to the District’s complaint against the company, is to lease up blocks of apartments and then operate and market them as short-term rentals through their website.
Racine has accused the short-term rental company of a host of offenses. First, under the Rental Housing Act of 1985, it is illegal to convert rental housing into tourist rentals—which appears to be Ginosi’s primary business. That means that the building management and owners (including Daro Realty and Daro Management Services) who leased to Ginosi were also implicated to the extent that they were aware of these illegal conversions.
Second, Ginosi allegedly collected an incorrect amount of sales taxes, then failed to pass along that tax revenue to the District.
Finally, Ginosi has been accused of misrepresenting the price of rooms they offer—sometimes charging more than double what was advertised on their site.
Why is it illegal to convert rental housing into tourist rentals?
Before the World Wide Web was a twinkle in Sir Timothy Berners-Lee’s eye and decades before websites for short-term rentals like Airbnb and HomeAway were invented, the DC Council addressed the policy problems caused by converting housing into short-term rentals.
One of the explicitly-stated purposes of the 1985 Rental Housing Act was “to protect the existing supply of rental housing from conversion to other uses.” (DC Code § 42–3501.02.) The council reasoned that it’s difficult enough to produce new housing and maintain the supply of homes the city has—the last thing DC renters need is for existing housing to be taken away.
Since that time, the internet has made it much easier to operate and market homes as tourist rentals on a wide scale.
What makes the Ginosi case particularly serious is that more than half of the apartments removed from the market were protected by rent control. Although it faces numerous threats, rent control still maintains thousands of lower-cost homes in the city–homes the city needs to continue to provide affordable options for people of all incomes.
What was the settlement, and what’s next?
The lawsuit alleges that Daro and the other building owners and managers were fully aware of Ginosi’s practices.
In the settlement, Daro agreed to the following terms, according to the Office of the Attorney General:
- Take steps to terminate all leases with Ginosi;
- Cease engaging in any further business or partnerships that sell illegal short-term rentals;
- Pay total restitution of $210,000 in the form of a rent refund or credit to long-term tenants of $132 per month for each month that the tenant lived in the building while Ginosi units were operated;
- Pay the District penalties and costs of $100,054.
No settlement has been announced for the other management companies and owners. If Attorney General Racine continues to be successful in this multi-million dollar lawsuit, DC stands to convert up to 70 apartments back into rental housing, and win more than $1 million in unpaid taxes from Ginosi.
Ginosi appears to be fighting back hard. They hired former Maryland Attorney General Douglas Gansler to battle the lawsuit and filed a motion to dismiss the lawsuit, which was denied at a hearing last Friday.
It appears the lawsuit still has a long road ahead. According to the docket, a jury trial is not expected until September of next year at the earliest.
DC is considering legislation that would prevent this kind of abuse
Unfortunately, Ginosi appears to be only the tip of the iceberg when it comes to the practice of illegally converting homes into tourist rentals. A DC Working Families study estimated in March that Airbnb alone has potentially removed 2,000 homes (and growing), and it’s unlikely the Attorney General will be able to single-handedly solve this issue through lawsuits.
This past year Ward 5 Councilmember McDuffie introduced legislation that addresses this issue systematically by streamlining the regulatory rules for short-term rentals and by adding reliable enforcement mechanisms.
The law would require hosts to obtain a license (as is already required by law) and limit short-term rentals to a person’s primary residence and English basement, in order to prevent the conversion of entire homes into tourist rentals.
Critically, it would enforce those requirements by holding hosting platforms like Airbnb–as well as hosts–responsible for complying. For example, platforms would be required to verify that the business license submitted by the host is legitimate before booking the rental.
The Council held a hearing for this legislation on April 26, 2017—the same morning the Attorney General announced his lawsuit against Ginosi. The bill is awaiting markup, but if it’s enacted, it should ensure that illegal conversions are the exception–rather than the norm.