Key Take: New York City’s proposed hotel licensing and new regulatory scheme for all hotels – a reaction to the COVID-19 pandemic – has caused significant uncertainty in the marketplace and pushback from the hospitality industry, though some aspects of the bill are likely to become enacted.
 
Hotels are a key component of New York City’s business industries, tourism, and overall profitability. Historically, New York City has been friendly and open to hotels and the hospitality industry. In 2008, there were approximately 76,400 hotel rooms in the city.[1] This number climbed to 115,000 by 2017 and continued to surge from there.[2] With the introduction of Airbnb, the number of available rooms increased dramatically, leading to an oversaturation of available rooms for visitors and locals alike. 

However, the COVID-19 pandemic severely impacted NYC’s hotel industry, requiring a number of properties to permanently close their doors and many others to suspend operations. Occupancy plummeted, employees were suspended, and hotels became used as temporary housing for homeless migrant communities, leading to public outcry by many affected neighborhoods. Since the COVID-19 pandemic, there has been a significant shift in how government has reacted to concerns exposed by the pandemic, including the role of hotels, labor unions, safety, and how to ensure hotels are property staffed, managed, and cleaned. 

In December 2021, the New York City Council adopted the Citywide Hotels Text Amendment, which required developers to go through a public review process to obtain a special permit for hotels, which we previously wrote about in Issue No. 1 of Leisure Law Insider.  By 2023, Local Law 18 was passed which banned short-term rentals for under 30 days in the five boroughs. This directly affected the more than 40,000 homes listed on Airbnb in NYC.  With the supply of Airbnb rentals slashed, hotels gained much of their pricing power back. But in January of this year, NYC signed a $77M contract with hotels to house migrant families in Brooklyn, Queens and the Bronx.[3] Many hotels are still being used as migrant shelters today. 

The reaction and subsequent response in the wake of the pandemic has continued. On July 18, 2024, members of the New York City Council, led by Councilwoman Julie Menin, introduced Int. 991-2024,[4] proposed legislation that could negatively impact hotels and other businesses in New York City. The bill, called the “Safe Hotels Act,” if enacted, would require new and existing hotels to obtain a license in order to operate their business in New York City. Additionally, hotels would be required to (1) maintain continuous front-desk coverage; (2) maintain at least one security guard; (3) maintain the cleanliness of each guestroom; and (4) directly employ all critical and core employees. 

Since the initial proposal a total of 30 sponsors have joined in supporting the bill. After receiving much pushback, the planned July 30 hearing on the bill was postponed to allow for more time for feedback and discussion. While the response to the COVID-19 pandemic is understandable, the proposed legislation has the potential to drastically increase costs and/or make it impossible to operate a hotel in NYC. Accordingly, there has been tremendous industry pushback against the bill.

As recently September 12, 2024, approximately 1,500 hotel and hospitality professionals rallied on the steps of New York City Hall to further protest the proposed bill. As one industry activist noted, “Hotels in New York City are already licensed. It’s called a certificate of occupancy.”[5]

Below is an outline of some key aspects of the bill that hotel owners, operators, suppliers, and developers should be aware of, as well as some potential issues that could come out of the proposed legislation. Although a hearing on the bill has not yet been scheduled, it is likely the NYC Council will enact some form of new legislation to address various issues highlighted by the COVID-19 pandemic.

Licenses

The first major requirement imposed by the bill is the necessity of a license. Under § 20-565.1 of the proposed legislation, a hotel cannot operate “without a valid license … [which] shall be valid for no more than two years and expire on the date the commissioner prescribes the rule.” There are additional restrictions that come with the license requirement, including that the license must be held by the current owner of the hotel, or whoever will be the owner upon granting of the license, and the license itself is not assignable. Licenses are also to be granted “in accordance with the provisions of [the bill’s] subchapter, chapter 1 of [Title 20 – Consumer Affairs], and applicable rules of the commissioner.” Chapter 1 of Title 20 governs license enforcement.

The granting of licenses is subject to approval by the commissioner, as are renewals of said licenses. One piece that is missing from the proposed bill is the standards by which the commissioner will review and evaluate license applications. While there is a requirement that the commissioner “notify the licensees of an anticipated revocation in writing and afford the licensee thirty days … to correct the condition,” it is unclear what some justifications for revocation may be. The proposed bill gives the commissioner complete discretion to revoke licenses. It is also unclear what the renewal requirements will be. 

This licensing and renewal process has the potential to cause significant financial and operational uncertainty in the industry. Hotels that are financed based on long-term performance have the possibility of license revocation. Uncertainty in licensing requirements could cause lenders and/or investors concern about the viability of new or developing projects. The uncertainty could also have a dire impact on operating projects to the extent significant modifications/renovations or added financial resources are required to become licensed.

Direct Employment

Another significant requirement of the proposed bill is direct employment of all “core employees” per § 20-565.7. The proposed legislation defines core employees as “any employee whose job classification is related to housekeeping, front desk, front service, or engineering at a hotel.” These include house persons, room attendants, door and bell staff, maintenance persons, and engineers. The bill does not permit an owner to contract out to third parties, except for a managing agent at the hotel owner’s behest. 

Hotel owners and operators typically use third-party vendors to fill “core employee” jobs at their hotels for the sake of efficiency and cost reduction. Additionally, hotels are structured in a way whereby owners do not operate the hotel but rather hire management companies to do so. Mandating direct employment could not only disrupt the relationship between owners, operators, and managers but also make it prohibitively expensive for smaller hotels to hire employees full-time. 

Front Desk Staffing

The third requirement is continuous coverage of the front desk at each hotel. Additionally, large hotels must “maintain continuous coverage of at least one security guard on premises while any guest room in such hotel is occupied.” A “large hotel” is defined as “a hotel with more than 100 guest rooms.” Therefore, most hotels will need full-time security round the clock. 

Rulemaking Power

Not only could the proposed bill impose possibly burdensome requirements on new and existing hotels but also it imbues the commissioner with the power to “promulgate such rules as the commissioner deems necessary to effectuate the provisions of this subchapter.” This bill could give the commissioner an immense amount of power surrounding regulations in the hospitality industry that have not existed previously. 

While there has been significant pushback, this proposed legislation is not without its potential benefits. First, the bill could act to ensure that subcontractors are not taken advantage of. Second, it could put in place and help enforce certain health and safety protections, such as mandatory “panic buttons to all employees that enter occupied guest rooms,” increased overall security measures, and chemical injury prevention. 

However, this bill could also have significant financial and operational implications for new and existing hotels in New York City. The hospitality industry has traditionally had the ability to operate within its own framework. Now the industry is facing increased regulatory and legislative scrutiny. Int. 991-2024 could go further than any legislation previously introduced. 

Many full-service hotels will likely not experience issues and may reap benefits from the health and safety mandates. However, establishing standards for everyone could lead to operational and financial implications that remain uncertain. Int. 991-2024 could have a real impact on the ability of owners, developers, and operators alike to do business in New York City. 

Should some or all of this proposed legislation eventually pass, we will issue a subsequent article detailing some the key aspects of the legislation and arguments industry players might be able to make to oppose enforcement of some of the more onerous provisions of the proposed legislation.

[1] The oversaturated hotel market is ruining NYC (nypost.com)

[2] Id.

[3] Exclusive | NYC inks $77M emergency hotels contract to shelter migrant families (nypost.com)

[4] The New York City Council - File #: Int 0991-2024 (nyc.gov)

[5] "Safe Hotels Act" would set up licensing system for NYC hotels. How it aims to protect workers, guests - CBS New York (cbsnews.com)