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The Airbnb application is displayed on an iPhone and iPad in this arranged photo.Andrew Harrer/Bloomberg

The City of Vancouver has filed what is believed to be its first lawsuit demanding an Airbnb host be forced to shut down, as fears about the service's impact on the local rental market are driving efforts to regulate and significantly restrict such short-term rental services.

The city had a staff member pose as a guest and book two nights in early September in a two-bedroom unit in Vancouver's Fairview neighbourhood.

The lawsuit, filed last Friday against the property's owner, East West Investments Ltd, and company director Heather Chang, says the listing violates city bylaws that only allow licensed hotels and bed-and-breakfast operators to rent units for less than 30 days. The lawsuit, which contains allegations that have not been tested in court, also says the operator doesn't have a business licence, another violation of bylaws.

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The lawsuit came as a surprise to city councillor Geoff Meggs, who has been leading the charge to regulate Airbnb, but he also said this kind of action is what's needed.

"Having some really timely, efficient and transparent enforcement process is incredibly important," Mr. Meggs said. He noted, though, that "this case seems to establish how difficult it will be to establish proof."

The city's court filing details how a municipal employee made a booking for an "Elegant 2BR in Fairview" for two nights beginning Sept. 7. The employee then stayed there for the two nights, getting keys through a lockbox and communicating about the unit with a group called the Flatbook Team, the document says.

The suit said that "the premises was a three-level townhome with two-bedrooms, and items such as towels, toiletries, and cooking utensils were provided."

The property is in a 1982 brick building called Heather Court with multiple townhouses grouped around a central courtyard. The townhouse, currently assessed at $802,000, is currently listed as renting for $159 a night. There is no indication whether any other residents or the strata council have ever raised concerns.

The employee observed the listing for that unit on six separate days, all indicating it was available for less than 30 days.

There is no telephone listing or website for an East West Investments in Vancouver, although the company offices are on West 41st, according to records the city found. Neither the company nor Ms. Chang have filed a statement of defence and neither could be reached for comment on Monday.

Christopher Nulty, a spokesman for Airbnb, said in an e-mail that the company doesn't comment on matters before the courts, but he emphasized that the majority of Airbnb landlords are people renting out their primary residences to make a little bit of extra money.

City officials have cracked down on an aspiring Airbnb landlord in the past – a building owner who was trying to convert several units in his building.

In that case, the city was able to withhold permits for renovations as a way of blocking the effort. As well, the tenants complained to the Residential Tenancy Branch.

The city is in the middle of developing a policy for regulating Airbnb-type bookings that would apply to all short-term rental services – 13 of which currently operate in Vancouver, though Airbnb is by far the largest.

That policy would allow homeowners to rent out their own principal residences for short-term rentals, but prohibit them from renting their basement suites or laneway houses.

More important, it would prohibit people who appear to be running commercial operations, where they have acquired a unit that is being rented out short-term on a year-round basis.

Although almost 5,000 listings appear on the Airbnb site for Vancouver, both city officials and Airbnb agree that the number of people who rent out units on a year-round basis is much lower.

Airbnb says around 320 hosts rent the units often enough in the year to make more money than they could get from a long-term tenant. City officials have said there are about 1,000 units that seem to be used full-time as rentals.

Mr. Meggs said public reaction to the idea of regulation for short-term rentals is positive so far, as the city conducts a lengthy consultation.

One area that people have expressed concern about is the restriction related to basement suites.

The City of Los Angeles filed criminal charges against a landlord in June for evicting tenants to convert units to Airbnb. Landlords in New York have sued tenants for renting out their units on a short-term basis.