Airbnb and HomeAway announced Monday that they are dropping a lawsuit that was challenging San Francisco's ordinance that penalizes them for the scofflaw behavior of their users. As part of the settlement agreement, as SocketSite reports, the short-term rental companies will both be implementing a requirement for new hosts that they enter a valid registration number from SF's Office of Short Term Rentals before allowing their listing to go live on the sites. Also, the sites have agreed to provide monthly reports of listings to the city, and to cancel future stays and disable a host's account if they are alerted to the presence of an unregistered host by the city.

Airbnb issued a statement Monday saying, "Similar to other agreements we have established with cities all around world, this agreement puts in place the systems and tools needed to help ensure our community is able to continue to share their homes."

Mayor Ed Lee thanks City Attorney Dennis Herrera for his work sorting out this issue, and said in a statement, "When platforms cooperate with the City to only list lawfully registered hosts, we can more effectively enforce our laws and protect our rental housing supply. This settlement is a significant leap forward for enforcement of our short-term rental laws."

Also, Board of Supervisors President London Breed chimed in.

The law, approved by the Board of Supervisors last spring, fines short-term rental companies $1000 per day per illegal listing, drawing a definitive line in the sand about where the responsibility lies for policing the activity of hosts. As you may recall, Airbnb had actively sought to challenge the city's law, filing suit last June and claiming that the law violated the 1996 Communications Decency Act — a federal statute that has typically shielded internet platforms from liability when it comes to the content posted by their users. Airbnb's attorneys also argued at the time that the law "violates the federal Stored Communications Act, which creates uniform privacy protections for internet users and prevents cities from simply demanding that platforms turn over user information without a subpoena or other legal process."

The City Attorney's Office argued that the law didn't penalize the companies for their users' content, but rather has the effect of "regulating the business activity of the hosting platform itself."

Back in November, a federal judge dealt a blow to Airbnb and HomeAway, denying a request for a preliminary injunction to halt the implementation of the law. At the time, the judge instructed the city and the companies to jointly arrive at a solution for cracking down on scofflaw hosts.

It's been suggested that Airbnb was hoping to prevail in this suit in SF, the first big one of its kind challenging a local crackdown like this, and use it as a template for challenging laws in other cities that are limiting the use of short-term rental platforms. Previously, Airbnb has complained that the city bears responsibility for making the registration process to cumbersome and time-consuming.

As Socketsite notes, there are now about 2,100 registered hosts in San Francisco, but about 8,000 listings on Airbnb alone — and, legally, hosts are only supposed to be allowed to list their primary residences.

Complaints about illegal Airbnbs have been on the rise, and now the short-term rental giant and its competitors will have 120 days to implement the registration requirement on their sites, and they have eight months in which to show that all users are registered with the city, or they must be removed.

Related: Airbnb Dealt Blow By Federal Judge In Their Challenge To SF Crackdown On Illegal Rentals