The “sharing economy” is an e-commerce darling, making household names of companies like Airbnb and Lyft, with lesser-known businesses such as RelayRides and MoneyParking emerging daily. Also called the peer-to-peer business model, the digital sharing economy was estimated at $26 billion in a 2013 Economist article, with Forbes estimating 25% annual growth. Its benefits have been touted by the public, some politicians and the press, and range from reduced environmental impacts and information asymmetry to increased social and trust communities, in addition to financial rewards for consumers on both sides of the sharing transaction.

While legions of users connect to car-sharing, home-sharing, parking-sharing and goods-sharing sites through smartphone apps, legal challenges pile up, because some aspects of the sharing economy aren’t strictly legal. Consider, for example, the subpoena from New York Attorney General Eric Schneiderman to accommodation-sharing site Airbnb, based on Schneiderman’s claim that most Airbnb hosts are violating a law prohibiting subletting homes for less than 30 days. In his April op-ed in the New York Times (“Taming the Digital Wild West”), Schneiderman also says Uber may be violating state laws on price gouging.

Last month, San Francisco City Attorney Dennis Herrera issued a cease-and-desist order to MonkeyParking, a smartphone app that lets people whose cars are parked on public streets rent spots to others when they vacate (from its app description: “stop circling the block: this is MonkeyParking”). The San Francisco order cites a Police Code ban on buying, selling or leasing public on-street parking. MonkeyParking has also been warned of civil penalties under the California Unfair Competition Law. City Attorney Herrera asked Apple to remove MonkeyParking from its App Store.

San Francisco isn’t new to regulating providers in the sharing economy – in November 2012, the California Public Utilities Commission fined Lyft, SideCar and Uber for operating ride-sharing services without public liability, property damage and workers’ compensation insurance. Indeed, insurance and liability are common themes in the sharing economy’s legal landscape. Does homeowner’s insurance cover injury to a weekend tenant? Does it compensate the homeowner for the tenant’s theft of the homeowner’s property? Who pays for injuries and property damage when following an auto accident? Is a car owner’s personal insurance cancelled if he rents his car to a stranger? A few states have addressed some of these questions, but many have not. In 2011, for example, Oregon passed a personal car-sharing law allowing temporary vehicle rentals but shielding the owner from liability for accidents or the possibility of insurance cancellation. (Or. H.B. 3149, Ch. 457, Laws 2011.)

Other legal concerns dogging the sharing economy include whether those renting their homes, cars and personal property are paying taxes on the income and whether health and safety codes (particularly for temporary rentals) are being observed. On a more granular level, an accommodations host may be violating building covenants or his lease. Whether the potential noncompliance is macro or micro, unsettled regulatory environments lead to legal risk. For those of us advising clients in the digital economy, the goal is to determine how to keep unanswered legal questions and known legal risks from undermining promising enterprises.

Not all sharing applications can (or should) survive legal challenges (remember Napster?); enforcement of laws (such as copyright, in Napster’s case) can doom popular ideas. We appreciate the ingenuity of the sharing economy, but caution clients not to overlook potentially applicable laws. If some sharing app providers are “cybercowboys” and “cyberlibertarians,” as Atorney General Schneiderman believes, and the online world is becoming “one of the primary crime scenes of the 21st Century,” the cyberpolice won’t be far behind. Ask us how we can help you stay on the right side of the law.