Industry Update
Opinion Article15 March 2019

Can Hotels Sue Their Governments Over Home Sharing?

By Larry Mogelonsky, Managing Director Hotel Mogel Consulting Limited

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This is a special case that I've been waiting to write about since it hit the airwaves here in Canada in late October. Most interesting here is that it has a few powerful implications for the fight traditional hotels are facing against industry disruptors coming in the form of home sharing.


Taxi drivers working in the City of Toronto launched a $1.7 billion CDN (about $1.4 USD) class action lawsuit against the city itself, claiming damages that reflect how much licensed taxis have lost - what is sometimes coined as 'plate value' - since these ride-sharing services came into the municipality. Given that drivers are licensed by the city itself, they say that the Toronto government has failed to protect the taxi industry and is thus negligent. Spokespersons for Toronto have responded saying the city bears no responsibility for any financial loss, the devaluation of taxi permits/plates or the state of drivers' retirement pensions.

Not being an attorney or a party to any of the statements of claim, I merely wish to draw parallels to the situation we in the hotel industry are facing. To open a hotel in most jurisdictions, you require an occupancy permit. Issued by a local licensing board, this permit requires any lodging operation to demonstrate compliance with a series of safety standards and other critical elements designed to protect guests, workers and the surrounding community. Some jurisdictions also mandate regular inspections for health, safety and fire regulation. As hotel operators, we look at these requirements as part of the normal operating process.

To echo hoteliers' perennial battle cry of leveling the playing field, I have yet to see a sharing-economy operator subject to all of these licensing procedures and to the same rigors as traditional hotels. How is this fair to the hotel operator? We do not argue the expense of the regulation. But in doing so, we expect that everyone else doing business in the lodging industry follow suit.

For the most part, electing to put a residence into the accommodations pool through, say, Airbnb or the like does not necessitate the acquisition of an occupancy permit, nor does it require any strict safety inspections. The playing field is simply not level, and from this I can see why cabbies in Toronto have banded together to throttle their discontent at the city itself. The very concept of regulation is under question, and governments haven't acted hastily enough to preserve the inherent value of the licenses or permits they issue.

As an example, if an extreme one at that, what happens in the case of a pop-up, 30-room condominium hotel comprising 30 different owners? Each is acting separately, but they may all contract for common services such as management, maintenance and housekeeping. Would they need an occupancy permit or perhaps 30 permits? How is this situation different from one where there is just one entity that happens to have multiple shareholder-owners?

Moving to the issue of legalities, what legitimacy is there to a city's mandatory occupancy permit requirements if these are not universally upheld? Does the bylaw under which this permit process was granted specifically state that the permit is required for a property with a minimum number of rooms? If not, why aren't all properties licensed regardless of their approach to marketing, channel distribution or positioning differences?

Unlike the financial hardship that has befallen the traditional car service industry, most hoteliers have had a pretty good year-to-date 2018. As such, it will be hard to rally the troops and justify a full-fledged legal battle against any government agencies like what the taxi drivers are starting to do. Nevertheless, I see nothing wrong with the ironclad stipulation that every operator, from one suite to one thousand rooms, should require a license to operate.

Does this sound fair? Is there any room for a middle ground in asking for the same regulations as traditional hotels? What happens when the next economic downturn hits and our 2018 numbers start to wither due in part to the gross oversupply stemming from the glut of alternate lodging providers?

Larry Mogelonsky

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