Airbnb and Uber have changed the way we think about travelling and accommodation, but how does a sharing economy affect the real estate sector?
While a sharing economy is not new in other fields of the economy, it has only become widely used in the real estate sector in recent times. Room sharing, office and workplace sharing, and even sharing of parking spots are getting popular, while several applications aim at improving the coordination of construction projects by sharing workforces and equipment. The shifting of consumer preferences from ownership to sharing, from individual use to cooperative utilization appears to be a worldwide trend. Whether the model is connecting consumer-to-consumer or business-to-business, people find new ways to connect and share their resources.
However, despite the economic and social benefits of the concept, the opportunities do not come without challenges.
Legal Challenges for Sharing Economies
In terms of regulatory regimes, sharing economies are often considered as a grey area between highly regulated business activities and less legally controlled acts of private individuals. The disputes between room-sharing companies and the hotel industry which have been in the media spotlight lately have revealed some general issues and regulatory gaps which could also impact other sharing economy concepts.
In Hungary, for example, room sharing does not qualify as a standard lease relationship but as a short term accommodation service provided by the host. While lease agreements aim at the long term lease of properties and require no permits and licences in general, accommodation services are limited to a shorter period, may involve additional services not traditionally associated with leases (such as cleaning services, serving breakfast, etc.), and may also be subject to certain licensing and notification obligations. The problem with this distinction is well known: some hosts do not obtain necessary licences and fail to pay taxes in connection with the services provided. Given that these hosts are actually competing with hotels and other accommodation service providers, they can therefore obtain an economic advantage to their competitors and cause significant tax revenue losses for the state. Because in typical cases both the host and the guest are private individuals, non-compliance with these provisions is extremely difficult to monitor and track down by the competent authorities – in particular the tax authorities. Frequently the conditions of the agreement between the host and its guests are not clearly regulated, and/or the general terms and conditions are not available in certain languages, which can lead to legal disputes and also cause consumer protection issues. One of the greatest challenges of sharing economies will be to mitigate language, liability, and security concerns.
In Hungary, other legal concerns have also arisen in connection with room sharing activities, as the growing demand on hosting services and the increased use of privately owned properties for short term rentals has caused a shortfall in the amount of real estate available for general living and housing purposes on the market. These two factors together have resulted in a rise of rental fees and purchase prices on residential property market in Budapest.
In light of present market trends, it is not hard to anticipate that new sharing economy models and concepts will appear in the near future. As the sharing economy expands and becomes more and more common, it is vital to set the boundaries between collective sharing and business activities and between regular users and users for business purposes. Given that the regulatory gaps of sharing-economy models will be regulated in a proper and reasonable way that considers changing consumer habits and the need for ensuring competition on the relevant markets, nothing will stand in the way of future growth of sharing economies. Nevertheless, the incredibly fast expansion of sharing economies has shown that we cannot take existing business models for granted.
By Tamas Balogh, Attorney at Law, Schoenherr Hungary
This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.