Nigel Warren, the New York tenant who ended up in trouble with the city after renting his room out on Airbnb, just got some bad news. A judge on the city’s Environmental Control Board (ECB), which arbitrates these matters, has found Warren’s landlord guilty of violating the state's illegal hotel law and fined him $2,400. Many Airbnb listings were already explicitly illegal in New York, but this ruling extends that illegality to cover even more types of listings.

Airbnb sent a lawyer to the hearing to argue on Warren’s behalf, the first time the startup has intervened in such a case. New York City, where Airbnb is projected to do $1 billion in sales in 2013, is an important battleground for the startup, which has run into trouble with regulators in some cities. David Hantman, Airbnb’s head of public policy, has said the company would like to make New York a "model city."

New York City is an important battleground for the startup

Airbnb decried the decision and dismissed it as a case of "overzealous law enforcement officials."

"This decision runs contrary to the stated intention and the plain text of New York law, so obviously we are disappointed," Airbnb said in a statement. "But more importantly, this decision makes it even more critical that New York law be clarified to make sure regular New Yorkers can occasionally rent out their own homes."

Warren rented out his room to a woman from Russia while he was in Colorado for three nights in September. He never met the guest, but his roommate, who is also on the lease, was home the whole time. Warren argued that because his roommate was home, his rental falls under one of the exemptions in the New York state law that regulates illegal hotels. A judge said that because he and his roommate never had contact with the guest, the exemption did not apply.

This is a new interpretation of a law that took effect in 2011, aimed at tenants who convert residential property into full-time illegal hotels. State representatives say the practice decreases the already low stock of housing in the city; the law was also supported by neighborhood associations and the hotel lobby.

The law seems to include an exemption for hosts who rent out an extra room or couch to a "lawful boarder" for less than 30 days, but remain in the dwelling while the guest is there. Because Warren's roommate was home while his Russian boarder was there, he argued that the exemption should apply. However, the judge interpreted the terms "boarders and lodgers" in the law to mean "occupants who share the life of the dwelling with its permanent occupants" and not to "complete strangers who have no, and are not intended to have any, relationship with the permanent occupant." Because the Russian visitor did not interact with Warren or his roommate, the judge said, the exemption should not apply.

The case just shows that more clarity is needed in the law, especially considering the arguments made by the city’s attorney, Michael Burns, who objected to any sort of paid short-term stay. Burns argued that the exemption is actually not aimed at short-term boarders at all, but was intended to protect longer-stay boarders during the first 29 days of their stay. The judge tossed this out, noting that if boarders stayed more than 30 days, they would be considered permanent residents and thus no exemption would be necessary.

The illegal hotels law was passed to combat companies like Smart Apartments, a slummy operation in which nearly 50 residential apartments were converted to illicit hotel rooms. New York has different building requirements for hotels, which are required to have extra fire safety measures, among other things.

Airbnb has become collateral damage in this fight

Airbnb has become collateral damage in this fight (although its model isn’t popular with neighborhood associations either). It’s rare that a host like Warren gets fined. In his case, a city inspector who was in the building investigating multiple complaints happened to run into Warren’s guest in the hallway and learned that she had paid to stay there.

Warren can appeal the decision if he chooses, but has not decided what to do yet. "Airbnb asked to chat so I'll wait to see what comes of that," he told The Verge in an email. An appeal could get the case in front of a judge who could rule more definitively; however, ECB decisions do not set a strong precedent for state law because they’re done at such a low level. It may be time to revisit the illegal hotels law to clarify how it applies to the new bed and breakfasts of the sharing economy.