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we are/were about to travel to New York city as a party of 5 next week from the Netherlands. We booked an airbnb in December 2022. The city of New York has announced later to crack down on airbnb hosts.

The city will begin enforcing its Short-Term Rental Registration Law on Sept. 5, requiring short-term rental hosts to register with the Mayor's Office of Special Enforcement. The law, which was adopted in January 2022, could significantly reduce visitors’ choices when it comes to lodging.

Suddenly 7 days before our trip, the booking was cancelled without a given reason. After contacting the host they said that they were afraid of fines by the city considering the new law. Immediately we started looking for alternatives as flights and things like Yankee tickets and a musical are also already booked. However hotel prices and airbnb's with a permit have skyrocketed in price or aren't available anymore. What is the best way we can deal with the situation? Is there a breach in contract by the host we should try to enforce?

Update: Our travel insurance would have covered all expenses, including plane tickets, musical tickets, yankee tickets and more. However after pushing airbnb support and asking to escalate the case we got a 1000 dollar discount coupon. Which was not enough to cover the cheapest other airbnb, but now we only lose 900 euro. This is still not ideal, but an acceptable compromise. Thank you for your support as a community and the well meant advice.

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Best you can do at this point is to lean into AirBnB as hard as you can and ask them to provide alternative accommodation and/or compensation.

We had an Airbnb cancelled the day before departure and Airbnb's "first offer" was really poor. After some back and forth we ended up with a solution that worked well for us, but it did require persistence and active negotiation. Airbnb customer reps do have some leeway but you need to push for it.

Disclaimer #1: most of our Airbnb experiences were great for both parties. The occasional hiccup is in my opinion no better or worse than with a regular hotel chain (two of which I am a "elite" member).

Disclaimer #2: that's a singular data point in a different city which may not be applicable to NYC special case.

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Is there a breach in contract by the host we should try to enforce?

See the Airbnb ToS:

 If the Host cancels, or you experience a Travel Issue (as defined in our Rebooking and Refund Policy), you may be eligible for rebooking assistance or a partial or full refund under the Rebooking and Refund Policy. Different policies apply to certain categories of Listings; for example Experiences Reservations are governed by the Experiences Guest Refund Policy, and Luxe Reservations are governed by the Luxe Rebooking and Refund Policy. See each Additional Legal Term or Policy for details about what is covered, and what refund applies in each situation.

Summary: one is entitled to rebooking assistance (if the host cancels 30 days or less prior to check-in), or a refund, as mentioned in the Rebooking and Refund Policy:

If a Host cancels a reservation prior to check-in, their guest will automatically receive a full refund. If a Host cancels 30 days or less prior to check-in, and the guest contacts us, we will also assist the guest with finding comparable or better accommodations.

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However hotel prices and airbnb's with a permit have skyrocketed in price

You made your bet, you lost it. Even in December 2022 it was known that AirBnb is acting on thin ice. In June 2023, the NY ban was already public (https://www.reuters.com/legal/airbnb-sues-new-york-city-short-term-rental-restrictions-2023-06-01/). Your host did not tell you they were not allowed anymore, but AirBnb did not notify you or them, too. Therefore you can try to bomb AirBnb with registered letter and you can surely get in touch with a lawyer to try to get some compensation. Would the lawyer costs you more money than the refund? Possible. Would you loose time in doing this? Absolutely.

Life is short, you already spent so much time in December 2022 looking for the best AirBnb host close to where you wanted and cheap, do not invest more time in this aspect, let it go.

What is the best way we can deal with the situation?

You take the hit, you pay the skyrocketed prices.

For next time you learned the difference between "regular" economy and "sharing" economy: in the first case you have regular contracts, with well-defined conditions both for the guest and for the host, in the second case guest and host are sharing being exploited from the platform. As a notorious group of philosophers were saying in the 80s:

Some of them want to abuse you

Some of them want to be abused

Sweet dreams are made of this

I agree with their conclusion

Who am I to disagree

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    (-1) I don’t see why this was a ‘bet’. The responsibility to comply with legal requirements rests with the host. A guest from the Netherlands won’t necessarily be aware of changing licensing requirements in NYC.
    – Traveller
    Aug 30, 2023 at 9:59
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    This answer seems more focused on shaming the OP for trying to save money than on providing practical advice.
    – Sneftel
    Aug 30, 2023 at 11:51
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    Are you seriously arguing that it's the duty of a customer of a foreign business to determine if that foreign business is complying with local law? That's insane. Aug 31, 2023 at 18:40
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    This recent article seems to say that the rental was legal initially, and then NYC changed the rules. Sep 1, 2023 at 21:02
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    @DimitriVulis It is relevant, it shows that you have to do due diligence even on a "simple" thing as booking accomodation for a trip with friends. I can lease a Euro0 car in some german small town, but then I cannot drive it in many other cities/towns, and this was time dependent (one day you could enter the city, the day after you had to buy a green ticket to enter the same city).
    – EarlGrey
    Sep 4, 2023 at 8:33

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